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The regional electricity generation mix in Scotland: A portfolio selection approach

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Author Info

  • Grant Allan

    ()
    (Department of Economics, University of Strathclyde)

  • Igor Eromenko

    ()
    (Department of Economics, University of Strathclyde)

  • Peter McGregor

    ()
    (Department of Economics, University of Strathclyde)

  • Kim Swales

    ()
    (Department of Economics, University of Strathclyde)

Abstract

Standalone levelised cost assessments of electricity supply options miss an important contribution that renewable and non-fossil fuel technologies can make to the electricity portfolio: that of reducing the variability of electricity costs, and their potentially damaging impact upon economic activity. Portfolio theory applications to the electricity generation mix have shown that renewable technologies, their costs being largely uncorrelated with non-renewable technologies, can offer such benefits. We look at the existing Scottish generation mix and examine drivers of changes out to 2020. We assess recent scenarios for the Scottish generation mix in 2020 against mean-variance efficient portfolios of electricity-generating technologies. Each of the scenarios studied implies a portfolio cost of electricity that is between 22% and 38% higher than the portfolio cost of electricity in 2007. These scenarios prove to be “inefficient†in the sense that, for example, lower variance portfolios can be obtained without increasing portfolio costs, typically by expanding the share of renewables. As part of extensive sensitivity analysis, we find that Wave and Tidal technologies can contribute to lower risk electricity portfolios, while not increasing portfolio cost.

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Bibliographic Info

Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1010.

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Length: 49 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:str:wpaper:1010

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Keywords: Electricity generation mix; portfolio theory; regional energy policy;

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