Complementarity of hydro and wind power: Improving the risk profile of energy inflows

The complementarity of two renewable energy sources, namely hydro and wind, is investigated. We consider the diversification effect of wind power to reduce the risk of water inflow shortages, an important energy security concern for hydropower-based economic zones (e.g. Quebec and Norway). Our risk measure is based on the probability of a production deficit, in a manner akin to the value-atrisk, simulation analysis of financial portfolios. We examine whether the risk level of a mixed hydro-and-wind portfolio of generating assets improves on the risk of an all-hydro, portfolio, by relaxing the dependence on water inflows and attenuating the impact of droughts. Copulas are used to model the dependence between the two sources of energy. The data considered, over the period 1958-2003, are for the province of Quebec, which possesses large hydro and wind resources. Our results indicate that for all scenarios considered, any proportion of wind up to 30% improves the production deficit risk profile of an all-hydro, system. We can also estimate the value, in TW h, of any additional one percent of wind in the portfolio. (C) 2009 Elsevier Ltd. All rights reserved.