Abstract
In all world geographies, renewable energy investment is viewed as a major component of the solution to meet the global energy demand. However, key renewable energy resources, such as wind and solar, are inherently stochastic, and thus, pose significant risk and reliability challenges. We apply financial engineering asset securitization principles in this paper to carve out risk-free generation capability from wind and solar energy generation. A market driven, dynamically evolving design and pricing of a risk-free tranche is developed that would allow renewable generators to competitively bid and participate in day-ahead power markets. We apply the framework to wind and solar resources located in different US geographies and assess the risk-free performance of the tranche against a risk-free benchmark established in this paper.
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