Offtake Strategy Design for Wind Energy Projects under Uncertainty

Title of Document: OFFTAKE STRATEGY DESIGN FOR WIND ENERGY PROJECTS UNDER UNCERTAINTY Xinyuan Zhu, Philosophy of Doctorate, 2014 Directed By: Associate Professor, Qingbin Cui, Department of Civil & Environmental Engineering Energy use from wind, solar, and other renewable sources is a public policy at the federal and state levels to address environment, energy, and sustainability concerns. As the cost of renewable energy is still relatively high compared to fossil fuels, it remains a critical challenge to make renewable energy cost competitive, without relying on public subsidies. During recent years, much advance has been made in our understanding of technology innovations and cost structure optimization of renewable energy. A knowledge gap exists on the other side of the equation – revenue generation. Considering the complexity and stochastic nature of renewable energy projects, there is great potential to optimize the revenue generation mechanisms in a systematic fashion for improved profitability and growth. This dissertation examines two primary revenue generation mechanisms, or offtake strategies, used in wind energy development projects in the U.S. While a short-term offtake strategy allows project developers to benefit from price volatility in the wholesale spot market for profit maximization, a long-term offtake strategy minimizes the market risk exposure through a long-term Power Purchase Agreement (PPA). With Conditional Value-at-Risk (CVaR) introduced as a risk measure, this dissertation first develops two stochastic programming models for optimizing offtake designs under short and long-term strategies respectively. Furthermore, this study also proposes a hybrid offtake strategy that combines both short and long-term strategies. The two-level stochastic model demonstrates the merit of the hybrid strategy, i.e. obtaining the maximized profit while maintaining the flexibility of balancing and hedging against market and resource risks efficiently. The Cape Wind project in Massachusetts has been used as an example to demonstrate the model validity and potential applications in optimizing its revenue streams. The analysis shows valuable implications on the optimal design of renewable energy project development in regard to offtake arrangements. OFFTAKE STRATEGY DESIGN FOR WIND ENERGY PROJECTS UNDER UNCERTAINTY