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Efficient electricity generating portfolios for Europe: maximising energy security and climate change mitigation

Author

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  • Awerbuch, Shimon

    (was Senior Fellow, Sussex Energy Group, SPRU, University of Sussex)

  • Yang, Spencer

    (Sussex Energy Group - SPRU - University of Sussex - Brighton)

Abstract

This paper applies portfolio-theory optimisation concepts from the field of finance to produce an expository evaluation of the 2020 projected EU-BAU (business-as-usual) electricity generating mix. We locate optimal generating portfolios that reduce cost and market risk as well as CO2 emissions relative to the BAU mix. Optimal generating portfolios generally include greater shares of wind, nuclear, and other nonfossil technologies that often cost more on a standalone engineering basis, but overall costs and risks are reduced because of the portfolio diversification effect. They also enhance energy security. The benefit streams created by these optimal mixes warrant current investments of about Euro 250 - Euro 500 billion. The analysis further suggests that the optimal 2020 generating mix is constrained by shortages of wind, especially offshore, and possibly nuclear power, so that even small incremental additions of these two technologies will provide sizeable cost and risk reductions.

Suggested Citation

  • Awerbuch, Shimon & Yang, Spencer, 2007. "Efficient electricity generating portfolios for Europe: maximising energy security and climate change mitigation," EIB Papers 7/2007, European Investment Bank, Economics Department.
    • Handle: RePEc:ris:eibpap:2007_007
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    More about this item

    Keywords

    Efficient electricity portfolios; electricity generation; investment;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other

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