Portfolio-Based Electricity Generation Planning: Policy Implications For Renewables And Energy Security

By Shimon Awerbuch. 2006

292 citations recorded by the source corpus.

Renewable generating technologies offer an effective means for climate change mitigation. Policy makers, however, are wary because of the widespread perception that these technologies cost more than conventional alternatives so that increasing their deployment will raise overall electricity generating costs.Energy planning represents an investment-decision problem. Investors commonly evaluate such problems using portfolio theory to manage risk and maximize portfolio performance under a variety of unpredictable economic outcomes. Energy planners need to similarly abandon their reliance on traditional, “least-cost” stand-alone kWh generating cost measures and instead evaluate conventional and renewable energy sources on the basis of their portfolio cost – their cost contribution relative to their risk contribution to a mix of generating assets.Energy security generally focuses on the threat of abrupt supply disruptions. This paper suggests a more profound aspect: mitigating fossil price volatility. An extensive body of research indicates that fossil volatility significantly disrupts the economies of consuming nations, potentially exacting hundreds of billions of dollars from the US and EU economies alone. Energy security is reduced when countries hold inefficient portfolios that are needlessly exposed to fossil price risks.This paper describes essential portfolio-theory ideas and uses three case studies to illustrate how electricity-generating mixes can benefit from additional shares of wind, geothermal and other renewables. Compared to existing, fossil-dominated mixes, efficient portfolios reduce generating cost while including greater renewables shares in the mix thereby enhancing energy security. Though counter-intuitive, the idea that adding more costly renewables can actually reduce portfolio-generating cost is consistent with basic finance theory. An important implication is that in dynamic and uncertain environments, the relative value of generating technologies must be determined not by evaluating alternative resources, but by evaluating alternative resource portfolios.

Subfields: Economics and Econometrics, General Energy, Renewable Energy, Sustainability and the Environment

View Paper: https://www.semanticscholar.org/paper/3b03666b12c069204c470270dd79e99450c3e9af

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Citations in the corpus

Pumped storage in systems with very high wind penetration (2011, background): “The first aspect of the results to note is the fact that this work does not examine portfolio optimization (Awerbuch, 2006) - it assumes a direct choice between storage and conventional plant.”
Exploiting the oil–GDP effect to support renewables deployment (2006, methodology): “We also address these issues.”
Risk-based methods for sustainable energy system planning: a review (2017, unknown): “Later, Awerbuch [51] applied MVP for deriving optimal (or efficient) energy generation portfolios yielding maximum expected return in combination with minimised risk.”
Renewable Energy in the Context of Sustainable Development (2011, background): “Hence, the extent to which RE sources contribute to the diversifi cation of the portfolio of supply options and reduce an economy’s vulnerability to price volatility (Awerbuch and Sauter, 2006) represent opportunities to enhance energy security at the global, the national as well as the local level ”
Who invests in renewable electricity production? Empirical evidence and suggestions for further research (2013, background): “…(see Table 1, column D): RES-E investors either plan portfolios including different electricity production plants within a larger energy system (cf. Awerbuch, 2006; Bhattacharya and Kojima, 2012; Carlson, 2002) or invest in very large plants (cf. Faúndez, 2008; Muñoz et al., 2009; Söderholm et…”
The challenging economics of energy security: Ensuring energy benefits in support to sustainable development (2012, unknown): “(2005), Kessels and Bakker (2005), Awerbuch (2006),”
Indicators for energy security (2009, background): “It can be applied to electricity generating mixes (Awerbuch, 2006; Awerbuch and Berger, 2003) or the wider energy system (Lesbirel, 2004), by not only taking into account the unit generating costs but also the variance in fuel costs and the correlations amongst different fuel costs.”