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Risk constrained contracting strategies of renewable portfolios

The search for clean energy development has motivated the expansion of renewable sources of generation around the world. In Brazil, Small Hydro Plants (SHP), Cogeneration from Sugarcane waste (Biomass) and Wind Power Plants (WPP) are proving themselves to be attractive alternatives over the last years. One important characteristic of each of these technologies is their seasonal availability, which result in financial risks that can make the energy contracting of each individual source too risky: producers are forced to price the market risks faced when selling firm energy contracts (i.e., the risks of purchasing in the spot market whenever their production is smaller than the contracted amount) and this may ultimately lead each of the projects to not being as commercially attractive by itself. On the other hand, in Brazil these sources have complementary energy production patterns, which immediately suggest a portfolio approach to devise energy contracting strategies for Electricity Trading Companies (ETC), which can “blend” these different (and complementary) production patterns to offer a flat and firm energy delivery. The objective of this work is to develop a mathematical model to explore synergies due to the seasonal complementarities of a Biomass, a SHP and a WPP. The proposed model aims at composing an optimal portfolio of these sources and jointly determines the risk-constrained optimal trading strategy for selling an energy contract in the Brazilian forward contract market. The CVaR approach is used to measure and control the market risk associated to the energy delivery. Case studies will be presented with realistic data from the Brazilian power system showing different strategies of commercialization by an ETC.