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Perfect Competition vs. Riskaverse Agents: Technology Portfolio Choice in Electricity Markets

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  • Malte Sundkötter

    ()

  • Daniel Ziegler

    ()
    (Chair for Management Sciences and Energy Economics, University of Duisburg-Essen)

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    Abstract

    Investments in power generation assets are risky due to high construction costs and long asset lifetimes. Technology diversification in generation portfolios represents one option to reduce long-term investment risks for risk-averse decision makers. In this article, we analyze the impact of market imperfections induced by risk-aversion on the long-term investment portfolio structure in the market. We show that risk-averse electricity market agents who receive a managerial profit share may shift the technology structure in the market significantly away from the welfare optimum. A numerical example provides estimates on the potential scale of this effect and discusses sensitivities of key parameters.

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    File URL: http://www.wiwi.uni-due.de/fileadmin/fileupload/BWL-ENERGIE/Arbeitspapiere/RePEc/pdf/wp1303_PerfectCompetitionVsRiskaverseAgents-TechnologyPortfolioChoiceInElectricityMarkets.pdf
    File Function: First Version, 2013
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    Bibliographic Info

    Paper provided by University of Duisburg-Essen, Chair for Management Science and Energy Economics in its series EWL Working Papers with number 1303.

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    Length: 35 pages
    Date of creation: Apr 2013
    Date of revision: Apr 2013
    Handle: RePEc:dui:wpaper:1303

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    Related research

    Keywords: Nodal Pricing; Market Design; Electricity Markets;

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