Perfect Competition vs. Riskaverse Agents: Technology Portfolio Choice in Electricity Markets
AbstractInvestments 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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Bibliographic InfoPaper provided by University of Duisburg-Essen, Chair for Management Science and Energy Economics in its series EWL Working Papers with number 1303.
Length: 35 pages
Date of creation: Apr 2013
Date of revision: Apr 2013
Nodal Pricing; Market Design; Electricity Markets;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
- Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
- C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-06-04 (All new papers)
- NEP-ENE-2013-06-04 (Energy Economics)
- NEP-UPT-2013-06-04 (Utility Models & Prospect Theory)
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