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

Author

Listed:
  • Malte Sundkötter
  • Daniel Ziegler

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

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.

Suggested Citation

  • Malte Sundkötter & Daniel Ziegler, 2013. "Perfect Competition vs. Riskaverse Agents: Technology Portfolio Choice in Electricity Markets," EWL Working Papers 1303, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Apr 2013.
    • Handle: RePEc:dui:wpaper:1303
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    Cited by:

    1. 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.

    More about this item

    Keywords

    Nodal Pricing; Market Design; Electricity Markets;
    All these keywords.

    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

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