EDP Renewables Develops Revenue Forecasting and Risk Analysis Tools for Wind Farms
- Core process automated
- Standalone program seamlessly integrated with enterprise IT infrastructure
- Risk management improved, saving millions of dollars
Utilities that run coal, natural gas, and oil power plants can control production and predict future revenue. For wind farms, however, business planning presents a challenge. A wind farm’s production changes based on local wind speeds, making forecasts much less reliable.
To generate accurate revenue forecasts and revenue-at-risk projections, EDP Renewables North America (formerly Horizon Wind Energy) combines production estimates for all wind farms in its portfolio with forecasts of power prices on the futures market. Using MATLAB®, EDPR analysts developed an automated risk-forecasting system that factors in historical data, current prices, and forward-looking estimates from expert analysts.
“Because our team already knew MATLAB, we did not need a programmer. Instead, our structuring and market operations analysts, who already had the necessary experience in mathematics and economics, developed the system directly, which is a much more efficient process,” says Manuel Arancibia, market operations manager at EDPR. “MATLAB enabled these analysts to build a reliable, scalable forecasting and analysis solution from scratch.”
EDPR’s initial system for projecting power prices was not feasible. “We had a network of 15 spreadsheets, some with as many as 500,000 rows,” recalls Michael Weeks, market operations analyst at EDPR. “The system wasn’t reliable. It crashed, it wasn’t scalable, and each new run required hours of manual steps.”
The team had to link price forecasts to volumetric forecasts for wind-generated power while cross-correlating price and wind levels across multiple geographically dispersed locations—complex tasks that were challenging with spreadsheets.
EDPR needed an automated forecasting and risk management solution that was reliable and scalable and could be deployed easily within the existing IT infrastructure.
EDPR analysts used MATLAB, MATLAB Compiler™, and companion toolboxes to develop two complementary systems: the Price Reporting System (PRS) for price forecasting, and the Portfolio Decision System (PDS) for portfolio and risk analysis.
For the PRS, Weeks used Database Toolbox™ to read data from multiple SQL databases, including internal long-term price forecasts, third-party forecasts, historical prices, and daily forwards contracts. He developed algorithms in MATLAB that analyzed this data to produce monthly price forecasts for the next several years across all EDPR wind farm sites.
Weeks used MATLAB Compiler to deploy a version of the PRS that runs automatically each morning and stores its forecast results in the database.
In developing the PDS, Cedric Kouam, senior structuring analyst at EDPR, used Database Toolbox to access the PRS price forecasts.
Using Econometrics Toolbox™, he determined the short-term and medium-term volatility of the pricing information based on historical options trading information.
With input from EDPR’s wind assessment group, Kouam used Statistics and Machine Learning Toolbox™ and Curve Fitting Toolbox™ to find a statistical distribution that fit the historical wind-level data at each site.
Kouam generated random numbers with Statistics and Machine Learning Toolbox for Monte Carlo simulations to study wind distribution and energy prices. These simulations quantified value at risk, revenue at risk, and overall projected revenue for individual wind farms and EDPR’s entire wind farm portfolio using over 2000 scenarios.
With Spreadsheet Link™, Kouam saved the results to a Microsoft® Excel® spreadsheet. The link enables analysts to use Excel as an interface to Kouam’s MATLAB based risk algorithm, saving hours of manual effort.
As a final step, Kouam used MATLAB Compiler to create a standalone version of the PDS that runs each morning 30 minutes after the PRS completes its processing.
EDPR is using the results produced by the PRS and PDS to guide strategy, evaluate potential wind farm sites, and make short-term and long-term business decisions.
Core process automated. “With spreadsheets, it took me two hours to generate new results from updated inputs,” says Weeks. “The PRS completes the analysis in a few minutes and runs automatically each morning.”
Standalone program seamlessly integrated with enterprise IT infrastructure. “By creating standalone operational programs using MATLAB Compiler and running them automatically, we can provide up-to-date forecasts and projections to EDPR analysts on a daily basis,” says Arancibia. “Our IT department set us up on the enterprise server, and we simply update the programs without any further help from them,” adds Kouam.
Risk management improved, saving millions of dollars. “The results produced by our MATLAB based tools raised awareness of the risk magnitude within our wind generation portfolio,” says Arancibia. “That awareness led the company early on to adopt a risk management process and hedge our exposure, which resulted in better price and energy congestion management at EDPR.”