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Risk management of energy system for identifying optimal power mix with financial-cost minimization and environmental-impact mitigation under uncertainty

Author

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  • Nie, S.
  • Li, Y.P.
  • Liu, J.
  • Huang, Charley Z.

Abstract

An interval-stochastic risk management (ISRM) method is launched to control the variability of the recourse cost as well as to capture the notion of risk in stochastic programming. The ISRM method can examine various policy scenarios that are associated with economic penalties under uncertainties presented as probability distributions and interval values. An ISRM model is then formulated to identify the optimal power mix for the Beijing's energy system. Tradeoffs between risk and cost are evaluated, indicating any change in targeted cost and risk level would yield different expected costs. Results reveal that the inherent uncertainty of system components and risk attitude of decision makers have significant effects on the city's energy-supply and electricity-generation schemes as well as system cost and probabilistic penalty. Results also disclose that import electricity as a recourse action to compensate the local shortage would be enforced. The import electricity would increase with a reduced risk level; under every risk level, more electricity would be imported with an increased demand. The findings can facilitate the local authority in identifying desired strategies for the city's energy planning and management in association with financial-cost minimization and environmental-impact mitigation.

Suggested Citation

  • Nie, S. & Li, Y.P. & Liu, J. & Huang, Charley Z., 2017. "Risk management of energy system for identifying optimal power mix with financial-cost minimization and environmental-impact mitigation under uncertainty," Energy Economics, Elsevier, vol. 61(C), pages 313-329.
  • Handle: RePEc:eee:eneeco:v:61:y:2017:i:c:p:313-329
    DOI: 10.1016/j.eneco.2016.11.019
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    2. Nie, S. & Huang, Z.C. & Huang, G.H. & Yu, L. & Liu, J., 2018. "Optimization of electric power systems with cost minimization and environmental-impact mitigation under multiple uncertainties," Applied Energy, Elsevier, vol. 221(C), pages 249-267.
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    5. Liu, Yanyan & Huang, Guohe & Chen, Jiapei & Zhang, Xiaoyue & Zheng, Xiaogui & Zhai, Mengyu, 2022. "Development of an optimization-aided small modular reactor siting model – A case study of Saskatchewan, Canada," Applied Energy, Elsevier, vol. 305(C).
    6. Chandra Ade Irawan & Peter S. Hofman & Hing Kai Chan & Antony Paulraj, 2022. "A stochastic programming model for an energy planning problem: formulation, solution method and application," Annals of Operations Research, Springer, vol. 311(2), pages 695-730, April.
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    More about this item

    Keywords

    Decision making; Energy planning; Financing; Power mix; Risk management; Stochastic programming;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G1 - Financial Economics - - General Financial Markets
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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