Portfolio optimization in the electricity sector

Abstract

Following the success of Markowitz’s portfolio-theory in the financial sector, there is increased need for appropriate methods dealing with more complex and more threatening risk characteristics in the already liberalized power generation sector. The application of the theory for the optimal real capacity decisions makes it possible accounting for uncertainties associated with future costs and revenues, and also interactions among various technology choices. My work concentrates on the identification of a diversified power generation mix, while quantifying power generation cost risk, with the goal of minimization of electricity price risk.