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Stochastic NPV Based vs Stochastic LCOE Based Power Portfolio Selection Under Uncertainty

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  • Carlo Mari

    (Department of Economics, University of Chieti-Pescara, 65127 Pescara (PE), Italy)

Abstract

This paper investigates the problem of power portfolio selection under uncertainty using two different metrics, namely the stochastic Net Present Value (NPV) and the stochastic Levelized Cost of Electricity (LCOE). In the first metric, stochastic revenues, as well as stochastic costs incurred during the whole lifetime of power plants, are taken into account. The second metric is based on stochastic costs only. This means that revenues deriving from selling electricity in power markets over long-term horizons play an important role in determining optimal portfolios under the stochastic NPV metric, but they have no impact on optimal portfolios under the stochastic LCOE metric. Uncertainty arising from unpredictable movements of electricity market prices, fossil fuels, and nuclear fuel prices is considered. Moreover, stochastic CO 2 costs are included into the analysis. The aim of this study was to examine in what circumstances efficient NPV-based portfolios differ in a significant way from efficient LCOE-based portfolios. The portfolio selection is performed using two different risk measures, namely the standard deviation and the Conditional Value at Risk Deviation (CVaR) deviation. The proposed methodology can be used as a powerful tool of analysis for planning profitable investments in new generating technologies paying attention to risk reducing strategies through power sources diversification.

Suggested Citation

  • Carlo Mari, 2020. "Stochastic NPV Based vs Stochastic LCOE Based Power Portfolio Selection Under Uncertainty," Energies, MDPI, vol. 13(14), pages 1-18, July.
    • Handle: RePEc:gam:jeners:v:13:y:2020:i:14:p:3677-:d:385557
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    Cited by:

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    3. Maria del Carmen Gomez-Rios & Dora Carmen Galvez-Cruz, 2021. "Simulation of Levelized Costs of Electricity Considering Externalities," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(4), pages 1-23, Octubre -.
    4. Tazi, Nacef & Safaei, Fatemeh & Hnaien, Faicel, 2022. "Assessment of the levelized cost of energy using a stochastic model," Energy, Elsevier, vol. 238(PB).
    5. Ruey-Chyn Tsaur & Chien-Liang Chiu & Yin-Yin Huang, 2021. "Fuzzy Portfolio Selection in COVID-19 Spreading Period Using Fuzzy Goal Programming Model," Mathematics, MDPI, vol. 9(8), pages 1-15, April.

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