Pricing the variance of wind energy

At present, the value of electricity produced by wind farms is often assumed proportional to the total energy produced. This is not an accurate model for determining the value of wind energy, however, since it neglects the cost to the utility associated with wind variability. In this paper, a model is proposed where the value of the wind energy produced includes terms related to the variance of the energy. It is shown, through a modeled utility, that a highly variable energy source has significantly less value than a constant source. Similarly, the value of energy from wind farms should be computed using the model proposed herein.