Understanding uncertainty in the power sector

UCL statistics research is helping power companies and policymakers to understand better the role of uncertainties in the power sector, helping them with decision making in areas such as modelling energy prices, hedging risk exposure via financial and physical positions, and investment appraisal.

Dr Afzal Siddiqui (UCL Statistical Science) has worked with the Norwegian power company Agder Energi to help the company to develop a clearer understanding of wind power production estimates. His research found that missing wind speed data caused by frozen wind masts can introduce bias into wind power production estimates and profitability assessments. He developed a new method for imputing the missing data, and a way to assess the economic impact of the missing data on expected revenues and the distribution of revenues.

Greater deregulation of the energy sector is likely to lead to more decentralised decision making by energy producers and consumers alike. While large power companies have the resources to manage such a transition, consumers often lack the necessary expertise. Another of Dr Siddiqui's projects, known as DER-CAM, has been developed with Berkeley Lab in the United States to help consumers with this problem. It enables them to minimise emissions, and manage their energy resources better, by assessing their energy profile and prevailing market information.

DER-CAM, which was funded by the US Department of Energy and the California Energy Commission, has been deployed at sites including the University of California at Davis, the Santa Rita Jail in Alameda County, California, and the University of New Mexico (UNM). It uses optimisation to help these consumers plan small-scale on-site power generation.

DER-CAM was installed at UNM to manage the operation of chilled water storage tanks and an absorption chiller powered by hot water from a solar array. The building required an automated procedure for forecasting demand, scheduling the use of the absorption chiller, and charging storage units - all operations that could not be handled by relying on simple rules of thumb. The university reports that using DER-CAM has led to significant reductions in their energy bill.

Dr Siddiqui has also used his research in workshops with policymakers and industry to increase understanding of the use of financial methods in the energy sector. Participants from power companies (including EDF Energy), consulting firms and ministries (including the Ministry of Energy, Mexico) gained knowledge of the underlying financial and business fundamentals in energy infrastructure investment.