Understand the Market Value of Your Wind Power Investment

Capture costs
Dec. 19, 2019Tor Reier Lilleholt & Katinka Bogaard

Wattsight have launched Capture Costs, a new analysis product that provides you with an indication of how profitable your wind investment opportunities can be in a given price area.

For more than 20 years, Wattsight have provided insights in long-term power prices for the European energy market. In recent years, these insights have been widely used for risk calculations of investments in renewable power production and power purchase agreements (PPAs). With a constantly changing market, our customers have expressed the need for continuous updates of additional market values of wind power production. 

Calculating long-term revenues

Investments in renewable energy projects depend not only on electricity volumes produced by wind power but also on the expected power price delivered in the market. Wind production tends to set pressure on the hourly prices if there is not enough flexibility in other production sources. Especially during hours with low consumption, e.g. during the night, wind power production contributes to pushing these low-price hours to even lower levels, sometimes resulting in a cannibalization effect if the installed wind capacity is above a given threshold. 

We provide hourly forward prices that capture the hourly, daily and seasonal variation necessary to properly estimate the profile costs associated with investing in wind power projects. We define this profile cost as the capture cost and do not include the balancing cost given from the fundamental handling of the volumes in the market. We, therefore, define the volume given to the market prices without balancing risk. 

How we forecast market values

We estimate hourly forward prices with the basis in the weekly simulated prices from the EMPS model from January 2022 to December 2037. Capture cost results are based on our assumptions for prices and growth in renewables presented in our Long-term Price Report. We use 30 climate years as input to give the important scenario analysis which is needed to cover all possible outcomes. Our modelling approach grasps the expected increase in renewable energy and the holiday effect for the entire time span covered, alongside our expectations for growth in consumption for each price area. This is done by generating an hourly price profile based on our hourly residual load scenarios (based on weather years from 1980 to 2009). We estimate the potential wind income based on our hourly forward price forecast and wind production forecast for each weather year.

Consistency of data

Based on our experience, using the same source of data input into the model simulation is vital. We use the ECMWF forecast for all fundamental models such as consumption and wind power, and the same data is the basis for the price variations. We often see that combining production forecasts from one source with price simulations from other sources fail. This type of calculation is dependent on high-resolution data, down to hourly granulation. We handle an enormous amount of data that fits perfectly together. Calendar effect on all types of data is important. Everything is available in our API.

The market's best risk management input

Investing in new renewables means setting a huge amount of money at risk, e.g. price, volume, profile, balancing, area-price, foreign exchange, counter-part, market liquidity and other operational and administrative risks. With our Capture Cost product, Wattsight aims to limit this risk by calculating potential variations resulting from some of these risks factors. In our experience, the results in the Nordic countries are a lot different than in similar calculations all over Continental Europe. The main reason is the huge potential in hydro regulation which dampens out a large portion of the wind effect in the Nordic countries. We also see a major seasonal effect from a lot more winter production of wind compared to summer production. This will, on a yearly average, very often remove the cost from the hourly effect from wind transferred to the prices. Our hourly resolution and the consistency in data will secure you the best possible simulation of these future effects, the future price variation is calculated out of an increasing share of new renewables and more volatility.

Get in touch

Contact Wattsight Sales  today and get a better insights and data for your risk management.