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Risk-Return Incentives in Liberalised Electricity Markets

Author

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  • Richard S.J. Tol

    (Department of Economics, University of Sussex, UK
    Institute for Environmental Studies, Department of Spatial Economics, Vrije Universiteit, Amsterdam, The Netherlands)

  • Muireann Lynch

    (Electricity Research Centre, University College, Dublin, Ireland)

  • Aonghus Shortt

    (Electricity Research Centre, University College, Dublin, Ireland)

  • Mark O’Malley

    (Electricity Research Centre, University College, Dublin, Ireland)

Abstract

We employ Monte Carlo analysis to determine the distribution of returns for various electricity generation technologies. Costs and revenues for each technology are arrived by means of a sophisticated unit commitment and economic dispatch algorithm. The results show that small amounts of coal investment along with high investment in advanced CCGT can reduce the risk of baseload-only portfolios, while flexible generation technologies appear on the efficient frontier when all technology types are considered. Diversification incentives regarding operational considerations dominate over incentives to diversify between fuel types

Suggested Citation

  • Richard S.J. Tol & Muireann Lynch & Aonghus Shortt & Mark O’Malley, 2012. "Risk-Return Incentives in Liberalised Electricity Markets," Working Paper Series 4012, Department of Economics, University of Sussex Business School.
    • Handle: RePEc:sus:susewp:4012
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    References listed on IDEAS

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    Cited by:

    1. Paulino Martinez-Fernandez & Fernando deLlano-Paz & Anxo Calvo-Silvosa & Isabel Soares, 2019. "Assessing Renewable Energy Sources for Electricity (RES-E) Potential Using a CAPM-Analogous Multi-Stage Model," Energies, MDPI, vol. 12(19), pages 1-20, September.
    2. Hao Chen & Chi Kong Chyong & Jia-Ning Kang & Yi-Ming Wei, 2018. "Economic dispatch in the electricity sector in China: potential benefits and challenges ahead," Working Papers EPRG 1819, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    3. Lynch & John Curtis, 2016. "The effects of wind generation capacity on electricity prices and generation costs: a Monte Carlo analysis," Applied Economics, Taylor & Francis Journals, vol. 48(2), pages 133-151, January.
    4. Lynch, Muireann Á & Devine, Mel & Bertsch, Valentin, 2018. "The role of power-to-gas in the future energy system: how much is needed and who wants to invest?," Papers WP590, Economic and Social Research Institute (ESRI).
    5. Curtis, John & Lynch, Muireann Á. & Zubiate, Laura, 2016. "The impact of the North Atlantic Oscillation on electricity markets: A case study on Ireland," Energy Economics, Elsevier, vol. 58(C), pages 186-198.
    6. Paulino Martinez-Fernandez & Fernando deLlano-Paz & Anxo Calvo-Silvosa & Isabel Soares, 2018. "Pollutant versus non-pollutant generation technologies: a CML-analogous analysis," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 20(1), pages 199-212, December.
    7. Jano-Ito, Marco A. & Crawford-Brown, Douglas, 2017. "Investment decisions considering economic, environmental and social factors: An actors' perspective for the electricity sector of Mexico," Energy, Elsevier, vol. 121(C), pages 92-106.
    8. Zeng, Ximei & Zhou, Zhongbao & Gong, Yeming & Liu, Wenbin, 2022. "A data envelopment analysis model integrated with portfolio theory for energy mix adjustment: Evidence in the power industry," Socio-Economic Planning Sciences, Elsevier, vol. 83(C).
    9. Janko, Samantha A. & Johnson, Nathan G., 2018. "Scalable multi-agent microgrid negotiations for a transactive energy market," Applied Energy, Elsevier, vol. 229(C), pages 715-727.
    10. Muireann Á. Lynch & Richard Tol & Mark J. O’Malley, 2014. "Minimising costs and variability of electricity generation by means of optimal electricity interconnection utilisation," Working Paper Series 6814, Department of Economics, University of Sussex Business School.
    11. deLlano-Paz, Fernando & Calvo-Silvosa, Anxo & Antelo, Susana Iglesias & Soares, Isabel, 2017. "Energy planning and modern portfolio theory: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 77(C), pages 636-651.
    12. Koltsaklis, Nikolaos E. & Dagoumas, Athanasios S., 2018. "State-of-the-art generation expansion planning: A review," Applied Energy, Elsevier, vol. 230(C), pages 563-589.
    13. Russo, Marianna & Bertsch, Valentin, 2020. "A looming revolution: Implications of self-generation for the risk exposure of retailers," Energy Economics, Elsevier, vol. 92(C).
    14. Lynch, Muireann & Devine, Mel T. & Bertsch, Valentin, 2019. "The role of power-to-gas in the future energy system: Market and portfolio effects," Energy, Elsevier, vol. 185(C), pages 1197-1209.
    15. Curtis, John & Lynch, Muireann Á. & Zubiate, Laura, 2016. "Carbon dioxide (CO2) emissions from electricity: The influence of the North Atlantic Oscillation," Applied Energy, Elsevier, vol. 161(C), pages 487-496.
    16. Tietjen, Oliver & Pahle, Michael & Fuss, Sabine, 2016. "Investment risks in power generation: A comparison of fossil fuel and renewable energy dominated markets," Energy Economics, Elsevier, vol. 58(C), pages 174-185.
    17. Wei, Yi-Ming & Chen, Hao & Chyong, Chi Kong & Kang, Jia-Ning & Liao, Hua & Tang, Bao-Jun, 2018. "Economic dispatch savings in the coal-fired power sector: An empirical study of China," Energy Economics, Elsevier, vol. 74(C), pages 330-342.

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    More about this item

    Keywords

    Power generation; mean-variance portfolio;

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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