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Managing Risk with Renewable Resources

The question of uncertainty and risk in electric utility resource planning has received considerable attention in recent years. One approach to managing risk is for a utility company to invest in diverse power sources such as wind power plants. The authors of this report test this hypothesis by conducting an in-depth analysis of the risk implications of a decision to build a 1600 MW wind power plant instead of a 400 MW gas-fired combined cycle plant. The uncertain inputs included fuel prices, environmental regulations, wind plant output, conventional plant availability, and load growth. This paper examines two different market scenarios: traditional regulation and an unregulated wholesale market characterized either by a power pool or fixed-price contracts of varying duration.