Analysis of wind power generation operation management risk in

China
Cun-bin Li, Peng Li
*
, Xia Feng
School of Economics and Management, North China Electric Power University, Beijing 102206, China
a r t i c l e i n f o
Article history:
Received 10 October 2012
Accepted 11 November 2013
Available online 10 December 2013
Keywords:
China
Wind power operation management
Risk analysis
Feed-in tariff
Risk management strategy
a b s t r a c t
The Chinese government has made an important effort to diversify the countrys energy mix and exploit
different sources of renewable energy. Although Chinas installed wind power capacity has undergone a
dramatic expansion over the past six years, the electricity generated from wind power has not increased
as expected. Meanwhile, operational risks, such as high generation cost, mismatch between capacity and
generation, intermittent wind power generation, power grid construction lag, decient policy, and
operation mechanism, have become increasingly prominent. If not controlled, these risks will negatively
affect wind power development in China. Therefore, this paper established a quantitative analysis model
of wind power operation management risk from two aspects, feed-in tariff and grid electricity (electricity
being connected to the grid), based on an analysis of wind power operation management risk in China.
Moreover, this study quantitatively assessed the risk of the operational management of a wind farm in
Inner Mongolia. Finally, corresponding risk control strategies for the healthy development of wind power
generation in China were proposed.
2013 Elsevier Ltd. All rights reserved.
1. Introduction
The demand for energy has continuously increased along with
the rapid development of the global economy and continuous im-
provements lifestyle. To date, oil, gas, coal, and other fossil energies
are still the primary energy sources of the world economy. How-
ever, limitations and hazard to the environment of fossil fuel energy
signicantly affect the security and development of human society.
To stop global warming and environmental deterioration, as well as
to construct a stable and sustainable developing society, countries
around the world are paying more attention to the utilization of
renewable energy. As a country that consumes large amounts of
energy, China attaches great importance to the development and
utilization of renewable energy, especially wind energy resources.
Hence, wind power generation has become the main way of
developing and using wind energy resources in China [1,2]. Chinas
total installed capacity has continually increased since 2005. Ac-
cording to the preliminary statistics of the Chinese Wind Energy
Association (CWEA), the total installed wind power capacity in
China has reached 62.3 GW and maintained a leading global posi-
tion by the end of 2011. In 2011, Chinas newly installed wind power
capacity reached 18 million kW, accounting for 40% of the global
total newly installed capacity (Fig. 1). After a decade of develop-
ment, China has become the leading country in wind power
development and utilization [3].
Thanks to the encouragement and promotion by both the cen-
tral government and local government in China, wind power gen-
eration has experienced a rapid development period. The installed
wind power capacity has reached a certain scale, which lays a solid
foundation for energy structure adjustments and energy-saving
emission reductions. However, wind power generation still expe-
riences problems, and its operational management incurs signi-
cant risks. Specically, the disharmony between the rapid
development of installed wind power and power grid planning
leads to overcapacity. The high generation cost and unreasonable
wind power feed-in tariff result in a loss of many wind power
generation enterprises. In addition, wind power operation suffers
from certain related policies and mechanical problems. Despite the
fact that China has been the leader in installed wind power capacity
around the world, its operational management still poses several
risks, which seriously inuence the efciency of wind power
operation management and result in a loss of wind power opera-
tion enterprises. Therefore, the wind power operation management
risk in China is a very important and meaningful topic to study.
Abbreviations: CWEA, Chinese Wind Energy Association; VAT, value added tax;
NDRC, National Development and Reform Commission; SETC, State Electricity
Regulatory Commission; SoEs, State-owned Enterprises.
* Corresponding author. Tel./fax: 86 10 51963572.
E-mail addresses: hdlp0830@163.com, ncepubjlipeng@163.com (P. Li).
Contents lists available at ScienceDirect
Renewable Energy
j ournal homepage: www. el sevi er. com/ l ocat e/ renene
0960-1481/$ e see front matter 2013 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.renene.2013.11.055
Renewable Energy 64 (2014) 266e275
Some studies have already examined the operational challenges
in the development of wind power in China, such as the mismatch
between capacity and generation, the contradictions of high gen-
eration cost and the xed feed-in tariff, the lag in grid construction,
some regulatory uncertainty and policy inconsistency. Taking the
northeast power grid as an example, Zhao et al. analyzed the cause
of the conict between the market mechanism and traditional
planning and its impact on large-scale wind power, and nally
suggested some measures to mitigate the conict [4]. The split of
plants and grids causes multiple subjects of interest to participate
in the competition for their own benets. However, the absence of
government management in the development and grid planning of
wind power results in inconsistencies between wind power
development and grid planning and construction, which results in
overcapacity risks [5]. Zhao et al. provided a newperspective of the
constraints on the effective utilization of wind power in the
Northeast China Grid and argued that constrained factors can be
divided into two categories: structural factor and operational factor
[6]. Yang et al. proposed that the large discrepancy between the
installed capacity and generation was mainly caused by the in-
adequacy of the power transmission grid, the absence of economic
incentives to transmission and backup generation providers, and
the lack of a generation-based renewable portfolio standard [7].
According to the three large problems (high generation cost, low
feed-in tariff, and stagnating development of domestic manufac-
ture) of wind power generation in China, Han et al. carried out a
specic analysis and put forward a corresponding policy to solve
these problems and promote the development of wind power
generation [8]. Yu et al. proposed a useful model to assess seasonal
and daily wind power generation by considering the wind power
generation, and the analysis result showed that the main inuence
factors included capacity and power output [9]. Zhao et al. estab-
lished an improved dynamic diamond model to study and evaluate
the important factors that inuence the current wind power in-
dustry development in China [10]. Liao et al. reported the technical
and economic potentials of wind power, the recent development,
existing obstacles, and related policies in China. The results showed
that the commercialization barriers of the wind power market are
very important and may deter the 100 GW capacity target of the
Chinese government by 2020 [11]. Despite the recent growth rates
that have promised a bright future, Li et al. proposed that two
important issues (the capability of the grid infrastructure and the
Symbols
P wind power feed-in tariff;
GC generation cost;
T tax
PF prot
DC depreciation cost
MC maintenance cost
SW salary and welfare
IF insurance fee
ME material expense
OF other fee
VAT value added tax
VATA value added tax additional
IT income tax
SEI sell electricity income
C
1
the per kilowatt wind turbine cost
G total installed capacity
l station service power consumption rate
a wind turbine cost accounting for the proportion of
initial investment
n depreciation period
r discount rate
T
i
equivalent utilization hours of ith
m value added rate
s wind power plant for prot margins
u operating cost according to the initial cost investment
proportion withdrawal
P
0
the nal price after the changes in risk factors
Dt the change in the annual equivalent utilization hours
R
T
P
the uctuation risk value of the wind power feed-in
tariff caused by the annual power generation
DC the changes in the system cost
R
C
P
the risk value of wind power feed-in tariff due to
system cost change
Dm VAT rate changes
DP wind power feed-in tariff variation value
R
m
P
the risk value of wind power feed-in tariff due to VAT
changes
Dr the discount rate variation
R
r
P
the price change risk due to changes in the discount
rate
c the scale factor of Weibull function
k the shape factor of Weibull function
v wind speed
f(v) the probability density function
F(v) cumulative distribution
v
in
cut-in speed
v
out
cut-out speed
P
r
rated power
v
r
rated speed
T
w
the operation time of the wind turbine
E[P(v)] desired output of the wind turbine
Var(P(v)) changes in the wind power output
Q wind farm generation
r
A
the wind power acceptance rate of the regional grid
Q
On-grid
the wind power delivered to the grid
R
On-grid
value of risk for wind power to be delivered to the gird
0
10
20
30
40
50
60
0
10000
20000
30000
40000
50000
60000
70000
2006 2007 2008 2009 2010 2011
%
I
n
s
t
a
l
l
e
d

C
a
p
a
c
i
t
y
M
W
Year
New installed capacity in China
Cumulative installed capacity in China
proportion of China installed capacity of globe
Cumulative installed capacity proportion of globle
Fig. 1. The installed wind energy capacity in China and its proportion to that of the
world sources: Chinese Wind Energy Association (2011); Global Wind Energy Council
(2011).
C.-b.Li et al. / Renewable Energy 64 (2014) 266e275 267
availability of backup systems) must be critically discussed and
tackled in the medium term in China [12].
Although some studies of wind power in China have been
conducted, the majority of them focused on the current develop-
ment and policy analysis of wind power in China. However, a few
referred to the quantitative study of wind power operation man-
agement risk. To improve the efciency and reduce risk of wind
power operation management, this paper studies Chinas wind
power operation management risk from the perspective of quan-
titative analysis. The rest of this paper is organized as follows: Part
2 qualitatively describes the wind power operation management
risk in China. Part 3 quantitatively analyzes Chinas wind power
operation management risk from the perspective of wind power
generation feed-in tariff and on-grid generation. Part 4 quantita-
tively analyzes the operating risk of a wind farm in Inner
Mongolia. Part 5 proposes several effective strategies for operation
management risk control. Finally, the paper presents our
conclusions.
2. Wind power operation management problems in China
With the increasing capacity of Chinas installed wind power, its
operational management problems have continually emerged.
These problems will bring enormous risks to the healthy and ef-
cient operation of Chinas wind power.
2.1. High generation cost and xed wind power feed-in tariff
The high cost and resultant high price of wind power are the
basic characteristics that constrain the commercialization of wind
power in China. According to the statistics, the average cost of
wind power generation is 0.32 Yuan/kW h in the common
operation period. The feed-in tariff including the Value Added Tax
(VAT) is 0.64 Yuan/kW h, and the price without VAT is 0.55 Yuan/
kW h. Compared to a coal power plant, the generating cost is
approximately 33%e60% higher, while the feed-in tariff
(including tax) is approximately 68%e94% higher [13]. In accor-
dance with Chinas energy storage institute statistics, the wind
power feed-in tariff in China was 0.600e0.700 Yuan/kW h in
2012. The lowest tariff was found at the Dongshan Aozai moun-
tain wind farm in the Fujian province (0.46 Yuan/kW h). The
highest tariff was found at the Cangshan wind farm in the Zhe-
jiang province (1.200 Yuan/kW h).
However, the benchmark feed-in tariff contradicts the market
mechanism. In China, the wind power generation is subject to a
benchmark price policy. According to the Notice of Perfecting
Feed-in Tariff Policy of Wind Power Generation, which was
released by the National Development and Reform Commission
(NDRC) in July 2009, the NDRC divides mainland China into four
regions based on their potential for wind energy resources and
the infrastructure conditions. For each of these regions, the
benchmark price is 0.51 Yuan/kW h, 0.54 Yuan/kW h, 0.58 Yuan/
kW h and 0.61 Yuan/kW h. At the same time, the NDRC continues
to implement a wind power cost allocation policy, which states
that compared with the local coal-red benchmark price, the
majority of the wind power feed-in tariff should be shared by the
national collection of renewable energy electricity fee. Although
this policy eliminates the risk of price uctuation to some extent,
it still incurs two side effects [14]. It lacks the price signal guid-
ance to conduct wind power operation. The xed benchmark
price not only ensures a return on investment for wind farms but
also isolates wind farms from the market signal, which leads to
the failure of wind farms to respond to the market price signal.
Furthermore, it lacks an effective risk sharing mechanism. The
current benchmark price policy and the full indemnicatory
acquisition management method of wind power place the risk of
wind power uctuations entirely on the Grid Company.
2.2. The harmful effect on the power grid scheduling plan made by
wind power generation intermittent
Wind is a type of natural resource that is uncontrollable and
unexpected. The wind power output depends on the velocity of
the wind. Due to the randomness of wind, the power output of
wind generators changes randomly. Wind turbines may stop,
especially in extreme situations, which will exert an adverse effect
on the access of wind power to the power grid. In addition, the
randomness of wind power generation signicantly affects the
power grid scheduling plan, which is formulated based on the
power supply reliability and load predictability. Therefore, when
the wind power capacity in the system reaches a certain scale, the
randomness and unpredictability of wind power generation
result in harmful effects on the traditional scheduling arrange-
ment and implementation.
2.3. Difcult accessing to grid and inefciency of wind power
utilization
The difculty in connecting electricity to the grid is a key
problem that restricts the development of the wind power in-
dustry. In the past, the power grid companies accessed all the
wind power. However, wind power has been developing too fast in
recent years, far beyond the power grid development planning,
which becomes an important problem when digesting wind po-
wer generation. The intermittent nature, randomness, lack of
scheduling ability of wind power generation have become the
bottleneck of development, and large-scale access to the power
grid will signicantly inuence safe operation. Moreover, due to
the unique geographical features of China, wind energy resources
concentrate in the northwest area. Conversely, the electric load
center is in the east. Thus, we need to solve the problem of
conveying wind power over the large distances between wind
power construction sites [15,16].
Wind power equipment is quickly installed, but its efciency is
relatively low. According to the statistics, the amount of wind po-
wer generated that is accessible to the grid is approximately
80 billion kW h in 2011, which constitutes an increase of 60%
compared with that of 2010. Nevertheless, the total wind power
generation that accounted for social power generation is 1.67%, a
0.5% increase over the previous year [17]. The total electricity use of
the population was 4.69 trillion kW h, a growth of 11.7% over 2010,
and the 80 billion kW h of wind power accounted for only 1.72% of
the total power consumption. The latest data showed that the
installed capacity of Chinas wind power has reached 65 million kW
by the end of 2011, accounting for 6.13% of the total installed ca-
pacity (1.06 billion MW). If calculated based on the power gener-
ation of an entire society, the ratio of wind power generation will
decline further (Fig. 2). With respect to the efciency of wind po-
wer, the wind power installed over the entire country produced
65 million kW and 80 billion kW h annually, which is converted to
approximately 1231 kW h per kW installed in a year. According to
the 20 year life expectancy of wind turbines, the total generation of
each installed turbine is more than 24,000 kWh over its lifetime. In
addition, according to the electricity benchmark price (0.3 Yuan/
kW h) of thermal power in most areas, each installed turbine rea-
ches a value of 7200 Yuan. While the cost of wind turbines is 8500e
9000 Yuan/kW h, the efciency will be not competitive compared
with coal in the long run.
C.-b.Li et al. / Renewable Energy 64 (2014) 266e275 268
2.4. Policy and mechanism problems with wind power operation
management
2.4.1. Incentive policy is not clear and missing
Although several incentive policies exist at both the federal and
local level, the effective implementation of clear and xed policies
for the sustainable and stable development of wind power is still
lacking. In the past, renewable energy policies were implemented
by many governmental agencies, such as the energy bureau of the
NDRC, the State Electricity Regulatory Commission (SETC), the
Ministry of Water Resources and the Ministry of Land and Re-
sources. Unfortunately, the responsibility of each agency was often
not clearly dened, and the organizations had partially conicting
agendas. China lacks a central supervisory body to provide coor-
dination and the necessary rmness to ensure the implementation
of targets and policies.
2.4.2. Lack of commercial operation mechanism and excessive
dependence on government
State-owned power enterprises play a rather signicant role in
the development of wind power in China. The bulk of investment in
wind farms comes from the leading state-owned power generation
enterprises, which were established in 2002 when the State Council
decided to break up the pre-existing State Power Corporation into
ve separate power generation companies and two grid companies.
Taken together, State-owned Enterprises (SoEs) occupied nearly
90% of Chinas installed capacity by the end of 2011 [18]. Still, wind
power is not the dominant activity for any of these company
groups. Instead, many focus on thermal and nuclear energy. In-
vestments in wind power are primarily made in response to the
requirement that all power generation companies must include a
certain percentage of non-hydro renewable energy in their port-
folios. China Guodian Corporation (through its afliate Longyuan
Power Group) is Chinas largest individual wind farmoperator, with
wind energy accounting for 6e7% of its total electricity generation.
2.4.3. Grid company lacks of condence in wind power generation
The essential reason for restricting wind power development is
that wind power generation is unstable. Thus, wind power is called
junk electricity by the grid. Moreover, the enthusiasm of the grid to
access wind power is low. Although the grid obeys national policies
and positively carries forward the construction of wind power
substations and transmission systems, the system still lags behind
the development of installed wind power.
In short, Chinas wind power development is still not on a
healthy track. The lack of clear incentive policies and an effective
operation mechanism are the main reasons for the risk of wind
power operation management.
3. Wind power generation operation management risk
analysis in China
According to the analysis of wind power operation manage-
ment, two major problems exist in China. One is related to the feed-
in tariff, the other concerns the grid electricity from wind power.
These two aspects are closely related to wind power generation
operation management. Therefore, the following quantitatively
analyzes the two aspects to reveal the risk of wind power operation
management in China.
3.1. Risk analysis model of wind power feed-in tariff
3.1.1. Components and inuencing factors of wind power feed-in
tariff in China
In the current Chinese nancial accounting system, the wind
power feed-in tariff is composed of the following expressions:
P GC T PF (1)
GC DC MC SWIF ME OF (2)
T VAT VATA IT (3)
VAT SEI 17% (4)
VATA VAT 8% (5)
IT SEI GC VATA*33% (6)
PF SEI GC T (7)
where P, GC, T, PF, DC, MC, SW, IM, ME, OF, VAT, VATA, IT and SEI
refer to wind power feed-in tariff, generation cost, tax, prot,
depreciation cost, maintenance cost, salary and welfare, insurance
fee, material expense, other fee, value added tax, value added tax
additional, income tax and sell electricity income.
Several factors inuence the wind power feed-in tariff due to its
composition [19]: (1) The annual power generation depends on the
wind energy resources, wind turbines, wind energy performance
design, and operational management level, etc., which are repre-
sented by the average annual equivalent utilization hours or ca-
pacity coefcient. (2) The system cost includes the cost of the wind
turbine unit and supporting facilities, etc. (3) The nancing con-
ditions include the loan interest rate and the payback period.
Because the nancing conditions in many cases are articial factors,
the factors will be merged into policy factors they are analyzed. (4)
The calculation method includes dynamic and static methods, and
the method depends on the price level. (5) The policy inuences
include the wind power operation enterprise tax, capital lending
and price and other factors. (6) The operation mechanism mainly
refers to introducing a competition mechanism into the
manufacturing of, for instance, wind power equipment, wind farm
construction, and operation management. This mechanism moti-
vates the participants to reduce the cost of products and services.
Among the factors mentioned above, the effect of some of them
on the price uctuation cannot be analyzed by the quantitative
method, such as the nancing conditions, calculation method and
operation mechanism. As a result, this paper constructs a risk
0%
2%
4%
6%
8%
10%
0
200
400
600
800
1000
2005 2006 2007 2008 2009 2010 2011
T
W
h
Year
wind power generation connected to grid
percentage of on-grid generaiton account for
whole power consumption
Fig. 2. Low proportion of wind power generation on-grid account for the whole so-
ciety power consumption from 2005 to 2011. Source: data from Chinese wind energy
association (2011).
C.-b.Li et al. / Renewable Energy 64 (2014) 266e275 269
measurement model of the wind power feed-in tariff considering
the inuence of the annual power generation, system cost and
policy factors.
3.1.2. Risk measurement model of wind power feed-in tariff
According to the composition of the feed-in tariff mentioned
above, the electricity price is related to the initial investment,
operating capital, annual equivalent utilization hours, etc. The
initial investment contains wind turbines, nancial cost and others
(land expropriation, design survey, etc.). The highest percentage is
composed of wind turbines. The operating costs include mainte-
nance cost, salary, etc.
Given that C
1
, G, l, a, n, r, T
i
, m, s, u represent the per kilowatt
wind turbine cost, total installed capacity, station service power
consumption rate, wind turbine cost accounting for the proportion
of initial investment, depreciation period, discount rate, equivalent
utilization hours of ith year, value added rate, wind power plant for
prot margins, and operating cost according to the initial cost in-
vestment proportion withdrawal. Thus, the wind power generation
annual capitation of the initial investment cost can be described by
Eq. (8) [20].
C
r1 r
n
1 r
n
1

C
1
G
a
(8)
In addition, assuming that the wind resource at a wind farm
remains stable each year, the annual equivalent utilization hours
are the same (T). The wind power feed-in tariff can then be dened
as follows:
P
C1 w1 s1 m
GT1 l
(9)
The wind power feed-in tariff (P) can be calculated by
combining expressions (8) and (9).
P
r1 r
n
C
1
1 w1 s1 m
_
1 r
n
1
_
T1 la
(10)
The uctuation risk of the wind power feed-in tariff is used to
measure the impact of the risk factor on the wind power feed-in
tariff. This relationship is demonstrated by Eq. (11),
R
p

jP P
0
j
P
100%
jDPj
P
100% (11)
where P is the wind power initial price, and P
0
is the nal price after
the changes in risk factors.
3.1.3. Risk analysis about uctuation in wind power feed-in tariff
Based on the risk factors related to the wind power feed-in tariff
and the risk measurement model developed above, we will analyze
the risk for uctuations in the wind power feed-in tariff from
annual power generation, system cost and policy inuence in the
next chapter.
3.1.3.1. Risk analysis considering the uctuation of annual power
generation. The generation of wind power depends on the annual
equivalent utilization hours, namely, the hour that can generate at
the rated power. Thus, the analysis of wind power generation
uctuation is equivalent to the annual equivalent utilization hours.
Provided that the change in the annual equivalent utilization hours
is Dt, the wind power feed-in tariff changes (DP) according to Eq.
(10) is given by Eq. (12).
DP
_
r1 r
n
C
1
1 w1 s1 m
1 r
n
T Dt1 la

r1 r
n
C
1
1 w1 s1 m
1 r
n
T1 la
_ (12)
If F r1 r
n
C
1
1 w1 s1 m=1 r
n
N1 la, Eq.
(12) is simplied into Eq. (13) as follows:
DP
FDt
TT Dt
(13)
Judging fromEq. (13), the annual equivalent utilizationhour is an
important factor inuencing the wind power feed-in tariff, and they
change in the opposite direction. The annual equivalent utilization
hour is decidedbytheratioof theannual generatingelectricitytothe
capacityof the installedwindturbines. For awindfarm, the installed
capacity is a denite number. Therefore, the annual equivalent uti-
lization hours indirectly reect the inuence of the annual power
generation on the feed-in tariff. In other words, the annual power
generation negatively correlates with the feed-in tariff.
Eq. (11) denes the uctuation risk value of the wind power
feed-in tariff caused by the annual power generation R
T
P
.
R
T
P

Dt
T Dt
100% (14)
From the Eq. (14), we can conclude that the wind power feed-in
tariff uctuation risk is determined by the annual equivalent uti-
lization hours.
3.1.3.2. Risk analysis considering the uctuation of system cost.
As a very important factor restricting the development of wind
power, it is necessary to analyze its relationship with feed-in tariff.
If the changes in the system cost are denoted by DC, the corre-
sponding change in the wind power feed-in tariff can similarly be
described as follows:
DP
_
r1 r
n
C
1
DC1 w1 s1 m
1 r
n
T1 la

r1 r
n
C
1
1 w1 s1 m
1 r
n
T1 la
_ (15)
Suppose Q r1 r
n
1 w1 s1 m=1 r
n
T1 la,
Eq. (15) is simplied to Eq. (16) as follows:
DP QDC (16)
Accordingly, we can obtain the risk value of the wind power
feed-in tariff due to the system cost change R
C
P
.
R
C
P

DC
C
(17)
According to Eqs. (16) and (17), we can conclude that the system
cost correlates positively with the wind power feed-in tariff change.
3.1.3.3. Risk analysis considering the uctuation of policy factors.
The policy factors that inuence the wind power feed-in tariff
include the discount rate and VAT rate. They are controlled by na-
tional policy. Therefore, an analysis of these factors is necessary to
develop risk control strategies for the wind power feed-in tariff
from the governments perspective.
If the VAT rate change is denoted by Dm, we can obtain the
wind power feed-in tariff variation value DP from Eq. (10) to yield
Eq. (18):
DP FDm (18)
C.-b.Li et al. / Renewable Energy 64 (2014) 266e275 270
Accordingly, we can obtain the risk value of the wind power
feed-in tariff due to the changes in VAT R
m
P
.
R
m
P

Dm
m
(19)
By combining Eqs. (18) and (19), we can conclude that the VAT
correlates positively with the wind power feed-in tariff. Further-
more, the uctuation risk of the feed-in tariff is proportional to the
changes of the value added tax.
The wind power feed-in tariff and r, which are important factors
that inuence policy, enjoy a nonlinear relationship. Thus, the
analysis of the discount rate is a bit more complex than the value-
added tax rate variation. Assuming that other factors are estab-
lished, the variation of the wind power feed-in tariff entirely
depends on the value of r.
Suppose that the discount rate variation is Dr and
D C
1
(1 w)(1 s)(1 m)/T(1 l)a. Thus, the variation in the
wind power feed-in tariff due to the discount rate change is given
by the following:
DP
r Dr1 r Dr
n
1 r Dr
n
1
D
r1 r
n
1 r
n
1
D

_
r Dr1 r Dr
n
1 r Dr
n
1

r1 r
n
1 r
n
1
_
D (20)
where D C
1
(1 w)(1 s)(1 m)/T(1 l)a.
Finally, we can obtain the risk value of the wind power feed-in
tariff R
r
P
due to changes in the discount rate.
R
r
P

_
r Dr1rDr
n
_
1r
n
1

r1r
_
1rDr
n
1

_
1rDr
n
1

(21)
Eq. (21) indicates that r is an important manifestation of the
national policy and the guiding method for the development of the
wind power industry, which will clearly affect the wind power
feed-in tariff. This effect will be shown in the next chapter.
3.2. Quantitative risk analysis model of wind power generation
delivered to the grid
As another signicant aspect of wind power operation man-
agement, the quantitative risk analysis of wind power generation
delivered to the grid is necessary. The wind power generation
delivered to the grid is not only decided by the level of wind re-
sources and wind turbines but also the ability of grid to access the
wind power. Thus, we will build on the quantitative risk analysis
model of wind power generation delivered to the grid from three
aspects.
3.2.1. Estimating the amount of wind power
Estimating the amount of wind power is necessary because
wind power is intermittent. Wind power resources in different
geographic locations are highly variable. The power generated from
wind depends on the wind speed, which uctuates randomly with
time and location. The wind speed distributions often follow a
Weibull distribution [21,22]. The probability density function of the
wind speed is represented by Eq. (22), where c >0 and k >0 are the
parameters of the Weibull function and refer to the scale factor and
shape factor, respectively. If the wind speed, denoted as v, follows
the Weibull distribution, the probability density function f(v) and
the cumulative distribution F(v), are given by the following [23]:
f v
k
c
_
v
c
_
k1
exp
_

_
v
c
_
k
_
(22)
Fv 1 exp
_

_
v
c
_
k
_
(23)
According to the historical wind resource data for the wind
farm, we can determine the two parameters of the Weibull distri-
bution and obtain the corresponding wind velocity distribution.
If f(v) is known, the character of wind turbines should be known
to obtain the amount of wind power. The relationship between the
output of wind turbines and the wind speed can be described ac-
cording to the majority of literature reports about the character of
wind turbines [24]:
Pv
_

_
0 v < v
in
or v
out
v
P
r

v
3
v
3
in
v
3
r
v
3
in
v
in
v < v
r
P
r
v
r
v < v
out
(24)
where v
in
is the cut-in speed, v
out
is the cut-out speed, P
r
is rated
power, and v
r
is the rated speed.
Hence, the yearly total generated electricity is expressed as
follows:
Q T
w
_
N
0
Pv,f vdv (25)
where T
w
is the operation time of the wind turbine.
3.2.2. Characterizing wind power generation volatility
To quantitatively describe the wind power generation risk, Jin
and Tian proposed a moment method to estimate the mean and the
variance of the WT power output. While the mean power repre-
sents the average energy output of the turbine, the variance char-
acterizes the power variability. Although the moment-based
method is relatively simple, it quite accurately predicts the long-
term generation performance, if the chronological wind speed
data are not available [25,26].
EPv
_
N
0
Pvf vdv (26)
E
_
P
2
v
_

_
N
0
P
2
vf vdv (27)
VarPv E
_
P
2
v
_
EPv
2
(28)
where E[P(v)] indicates the desired output of the wind turbine and
Var(P(v)) stands for the changes in the wind power output due to
changes in the wind speed. The value of Var(P(v)) positively cor-
relates with the change in the wind power and the generating risk.
3.2.3. Calculation of wind power delivered to the grid and value at
risk
The amount of generated wind power delivered to the grid not
only depends on the actual wind resources but also on the ability of
the power grid to accept the power [27]. If the generation of a wind
farm is denoted as Q, the wind power acceptance rate of the
regional grid is r
A
and the station service power consumption rate is
C.-b.Li et al. / Renewable Energy 64 (2014) 266e275 271
l, the wind power delivered to the grid (G
On-grid
) is given by Eq.
(29):
G
Ongrid
Q1 lr
A
(29)
The value of the risk for the wind power to be delivered to the
grid is given by Eq. (30).
R
On_grid
T1 l*r
A

2
_
E
_
P
2
v

_
EPv
2
__
T1 l*r
A

2
_
_
_
_
N
0
P
2
vf vdv
_
_
_
N
0
Pvf vdv
_
_
2_
_
_
(30)
From Eq. (30), we can conclude that the risk of the wind power
delivered to the grid is related to the wind speed, the power
characteristics of the wind turbine, the station service power con-
sumption rate, and the wind power acceptance rate of the regional
power grid. Therefore, risk control measures can be conducted from
these four aspects.
4. Case studies
The study analyzed the operation management risk of wind
farm A in Inner Mongolia by using the model proposed above. The
annual average wind speeds measured by the wind farm
anemometer towers at 70 m and 10 m were 7.4 m/s and 5.9 m/s,
respectively. The annual average wind power densities were
425.7 W/m
2
and 205.5 W/m
2
. According to the classication in
China, the wind density in this case is classied as level III. Using
the wind speed measured at 70 minwind farmA as a reference, the
wind speed Weibull distribution parameters at 70 m can be
determined according to the wind tower historical survey data
(k 2.00, c 8.4 m/s). The unit capacity was 1500 kW, and the total
installed capacity was 100.5 MW. The rated wind speed, cut-in
wind speed and cut-out wind speed of the installed turbines
were 12 m/s, 3 m/s and 20 m/s, respectively.
4.1. The analysis of wind power feed-in tariff risk
According to the investigation results and the basic parameters
set by the China electric power engineering budget estimated
quota, the specic settings are shown in Table 1.
According to Eq. (10) and the basic operating parameters, we
can calculate the wind power feed-in tariff of wind farm A at
0.6587 Yuan/kW h. The wind power price is almost twice that of
thermal power electricity (0.35 Yuan/kW h). The price indicates
that the feed-in tariff for wind farm A does not have a competitive
advantage.
To analyze the feed-in tariff uctuation risk for wind farmA, this
case was studied from four aspects, namely the annual equivalent
utilization hours, system cost, discount rate and value-added tax
rate. The specic results are shown in Fig. 3. From Fig. 3, we can
discern that the wind turbine system cost, value added tax and
discount rate positively correlate with the wind power feed-in
tariff, although their growth rates are quite different. Of these
variables, the wind turbine cost and value-added tax linearly
correlate with the feed-in tariff. However, the discount rate and
feed-in tariff changes were approximated. In addition, the annual
equivalent utilization hours negatively correlate with the wind
power feed-in tariff. In other words, the feed-in tariff continually
reduces as the annual equivalent utilization hours increase. The
annual equivalent utilization hours and wind power installed scale
simply reect the annual generation of the wind farm. Therefore,
we can see that the wind power generation and feed-in tariff
negatively correlate. Increases in the amount of power generated
on the wind farm lower the feed-in tariff. In summary, the wind
power feed-in tariff is inuenced by the system cost, annual power
generation, value added tax and discount rate. To control the wind
power feed-in tariff uctuation risk, government and wind power
operation enterprises should implement certain policies and
measures to control the operation management risk.
4.2. Wind power delivered to the grid risk analysis
The wind speed distributions at wind farm A can be described
by k 2.00, c 8.4 m/s of the Weibull distribution to give the
distribution function of the wind velocity is f(v).
f v
v
35:28
exp
_

v
2
70:56
_
According to Eq. (24), the wind turbine output power P(v) is
expressed as follows:
Pv
_

_
0 v < 3 or 20 v
1500
1701
v
3

40500
1701
3 v < 12
1500 12 v < 20
The annual power generation can be expressed by the
following:
G N T
_
N
0
Pv,f vdv 3:17 10
8
kW h
According to Eq. (28), calculate the value of risk of wind power
generation in wind farm A.
VarN T Pv 5:38 10
7
kW h
The calculation results show that the annual wind power gen-
eration of wind farm A is expected to be 3.17 10
8
kW h, while the
amount of change is expected to be 5.38 10
7
kWh. The generating
uctuation risk in the wind farm A is very high. The manager of the
wind farm should strengthen the operation management to guar-
antee stable power generation and avoid negative effects on the
regional grid.
Due to the insufcient construction of reserved load regulation
units in the grid, it could not fully accept the energy of wind farmA.
The average acceptance rate is 56%. According to Eq. (30), the actual
power delivered to the grid of wind farm A is 1.78 10
8
kW h. The
uctuation in the power access is 1.68 10
7
kW h, almost 10% of
Table 1
Operation management basic parameter setting of the wind farm A.
Items Parameters
Wind turbine cost (C
1
) 8000 Yuan/kW h
Total installed capacity (G) 100,500 kW
Wind turbines cost accounts for the
proportion of initial investment (a)
75%
Station service power consumption rate (l) 3.5%
Depreciation period (n) 20
Discount rate (r) 8%
Equivalent utilization hours of ith (T
i
) 2300 h
Value added rate (m) 17%
Wind power plant for prot margins (s) 6%
Operating cost according to the initial cost
investment proportion withdrawal is (u)
8.5%
On-grid rate (r
A
) 1
C.-b.Li et al. / Renewable Energy 64 (2014) 266e275 272
the annual power generation of wind farm A, which signicantly
affects the safe operation of the grid. Thus, the operation of wind
farm A faces enormous risk; it should strengthen the wind farms
operating risk management measures.
5. Risk control strategy of wind power operation
management in China
5.1. Establish a reasonable wind power feed-in tariff system
The feed-in tariff system of wind power should be continuously
improved by the development of the electricity market and the
smart grid. The introduction of a compensation mechanism for the
development of wind power should be considered appropriate to
encourage power enterprises. The compensation mechanism
should have a combining mode, which includes basic tariff and
price subsidies. The price subsidy part can be shared by contribu-
tions to society as a whole, government subsidies and wind power
development funds. (1) Whole society contribution. The amount of
the wind power feed-in tariff that exceeds the coal power gener-
ation price should be allocated to the grid, calculated again, and
imposed on an electric charge. (2) Government subsidies. The
government gives full subsidies to the wind power accepted by the
grid via a nance approach or reducing several taxes to digest the
excess wind power feed-in tariff. (3) Establishing a wind power
development fund to pay the price difference. At the same elec-
tricity generation level, the one who needs the minimum full
assistance can obtain the fund grant contract.
5.2. Strengthen commercialization and market-oriented of the wind
power operation management
The main body of wind power investment and operation man-
agement in China consists of the government and ve major power
generation groups. Their operation has political background. Thus,
the operation management efciency is relatively lowcompared to
market and commercial operation management. Therefore, wind
power operation should be separated from government agencies.
(a) (b)
(c) (d)
2000 2100 2200 2300 2400 2500 2600 2700 2800 2900 3000
0.5
0.55
0.6
0.65
0.7
0.75
0.8
hours
Y
u
a
n
/
k
W
h
0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09 0.1
0.35
0.4
0.45
0.5
0.55
0.6
0.65
0.7
0.75
0.8
Y
u
a
n
/
k
w
h
5000 5500 6000 6500 7000 7500 8000 8500 9000 9500 10000
0.4
0.45
0.5
0.55
0.6
0.65
0.7
0.75
0.8
0.85
0.9
Yuan/kW
Y
u
a
n
/
k
W
h
0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2
0.58
0.6
0.62
0.64
0.66
0.68
Y
u
a
n
/
k
W
h
Fig. 3. The relationship between wind power feed-in tariff and wind farms operational management risk factors. (a) Change of wind power feed-in tariff with annual equivalent
utilization hours; (b) change of wind power feed-in tariff with discount rate; (c) change of wind power feed-in tariff with wind turbines system cost; (d) change of wind power feed-
in tariff with value added tax.
C.-b.Li et al. / Renewable Energy 64 (2014) 266e275 273
First, it should break the traditional government management
behavior of wind power enterprises and introduce a market
competition mechanism. Then, public bidding should contribute to
the determination of the nal feed-in tariff to encourage techno-
logical progress and a continuous drop in the feed-in tariff.
5.3. Accelerate the pace of regional grid construction for wind farms
The collaboration between local governments and large power
corporations aggravates the imbalance between wind capacity and
grid access. Economic incentives provide a backup for wind power
integration and make up for the inadequacy of the power trans-
mission grid. First, attractive nancial incentives should be set up
for grid system operators to stimulate wind power integration.
Second, because both the Renewable Energy Law and other related
regulations have failed to solve the problem of wind power inte-
gration, a rigorous monitoring system with nes and nancial in-
centives should be set up to force the implementation of existing
rules. Finally, strengthening the coordination between the con-
struction of a wind power project and electric grid can encourage
more investment in the elds related to wind power transmission.
5.4. Reduce the cost of wind power installed
The investment in wind power installation accounted for
approximately 80% of the total investment in wind power projects,
which largely determines the feed-in tariff of wind power. There-
fore, the installed cost of wind power should be reduced to reduce
the feed-in tariff. Moreover, the R&D level of domestic wind tur-
bines should be increased to reduce the wind generator
manufacturing cost.
5.5. Perfect wind power operations management policy
Due to the deciency of some operation management policies,
the development of wind power has been limited in China. Thus,
certain policies are suggested to manage wind power operation. (1)
Ensure that all wind power generated can access the grid. The
government should allow wind power to be delivered to the
nearest grid and purchase it at a reasonable price. Moreover, the
government should increase audit efforts of wind power project
examinations and approval. Finally, it should create favorable
conditions for wind power to be delivered to the grid. (2) The
government gives preferential policies to wind power operation
enterprises and grid enterprises via a tax rate, mainly by reducing
the value added tax, value added tax additional and individual in-
come tax. (3) Implement exible price to enhance wind power
competitiveness and better reect the situation of demand and
supply of wind power. (4) Further accelerate electricity market
reform, expand the scope of wind power trade, and improve the
electricity trade mechanism to promote wind power trans-
provincial and trans-regional trade.
6. Conclusions
Over the past ten years, Chinas wind power has undergone a
rapid development period, growing from an installed capacity of
less than 500 MW to a world-leading level. This development
constitutes a positive step for the Chinese government energy
conservation, emission reduction, and environmental protection
efforts. However, with the dramatic increase in the installed wind
power capacity, Chinas wind power operation management risk
has also emerged over time. This risk consists of a mismatch in the
rapid development of wind power and power grid planning leading
to overcapacity; intermittent wind power generation output,
leading to uncertainty; and high generation costs and unreasonable
feed-in tariffs, which cause losses in most of the wind power
generation enterprises. These situations constitute unreasonable
policies and mechanisms of wind power generation in China.
Therefore, Chinas wind power operation risk management
research is important, and its signicance is far-reaching.
Based on summarizing the risk of Chinas wind power operation
management, this paper proposed a quantitative analysis model of
wind power operation management risk from the aspects of the
wind power feed-in tariff and wind power generation delivered to
the grid. Next, the operation management risk of a wind farm in
Inner Mongolia was quantitatively analyzed. The analysis of the
results shows that the system cost, value added tax and discount
rate change positively correlate with the wind power feed-in tariff.
The annual equivalent utility hours of a wind farm negatively
correlate with wind power feed-in tariff. The resources and
regional grid accessing level are the main inuencing factors of the
wind power generation delivered to the grid, the grid acceptance
level plays an especially decisive role. Finally, this paper suggests
corresponding risk control strategies based on the wind power
feed-in tariff system, operation management commercialization,
and market orientation to match the power grid and wind farm
construction and government policy for improving Chinas wind
power operation management efciency.
Acknowledgments
This study is funded by the National Natural Science Foundation
of China (Grant number: 71071054; 71271084) and the Funda-
mental Research Funds for the Central Universities. The authors
appreciate the anonymous reviewers for their valuable comments,
which are helpful to improve the paper.
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