When variance is not risk: Analysing wind power assets in electricity markets

This paper discusses how to analyse deployment of non-predictable electricity production capacities, using wind power production assets as the case of study. I use data from the Nordic electricity markets for illustrations throughout the paper. First, I propose alternative measures of risk relevant to regulatory bodies like system operators, two measures relating to the day-ahead electricity market, and two measures focusing on the redispatch electricity market. While the existing literature to a large extent focus on variation in production, I argue that the relevant risks for system operators relates to excess demand, thus the measures of risk applies various modifications of excess demand when measuring risk. Finally, the current paper proposes two alternative methods for measuring risk, the use of measures as ‘Value at Risk’ and ‘Expected Shortfall’ is more suited for evaluating the risks facing system operators.