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Development of cogeneration in Germany: A mean-variance portfolio analysis of individual technology’s prospects in view of the new regulatory framework


  • Westner, Günther
  • Madlener, Reinhard


The Integrated Energy and Climate Protection Program of the German government includes the political target of doubling the share of combined heat and power generation (CHP) in Germany from currently about 13% to 25% by 2020. In order to reach this goal, a new CHP law was enacted to improve the framework conditions for CHP generation. In this paper, we aim at identifying which CHP technologies are most likely to be installed in the near future to reach the CHP target stipulated by the German government. In our model, we apply Mean-Variance Portfolio (MVP) theory to consider return- and risk-related aspects of various CHP technologies. The analysis pays tribute to specific characteristics of CHP generation, such as promotion via guaranteed feed-in tariffs, additional revenues from heat sales, specific operational features, and specifics concerning the allocation of CO2 allowances. The investigation is based on four generic standard CHP technologies currently available on a commercial basis: large coal-fired CHP plants, combined-cycle gas turbines (CCGT-CHP), engine-CHP and micro-turbine CHP. As selection criteria for the portfolio performance we take, independently from each other, the net present value (NPV) of investment in CHP and the expected annual portfolio return, and compare the results obtained from both approaches. Irrespective of the chosen selection criteria, the analysis shows that CCGT-CHP and engine-CHP are the most attractive CHP technologies from a return perspective. A diversification of the portfolio with other kinds of CHP technologies can contribute to stabilizing portfolio returns. In view of the results obtained we conclude for the further development of CHP generation in Germany that a large portion of additional new CHP capacity will probably be built in the industrial sector.

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  • Westner, Günther & Madlener, Reinhard, 2011. "Development of cogeneration in Germany: A mean-variance portfolio analysis of individual technology’s prospects in view of the new regulatory framework," Energy, Elsevier, vol. 36(8), pages 5301-5313.
  • Handle: RePEc:eee:energy:v:36:y:2011:i:8:p:5301-5313
    DOI: 10.1016/

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    Cited by:

    1. Frank A. Wolak, 2016. "Level versus Variability Trade-offs in Wind and Solar Generation Investments: The Case of California," The Energy Journal, International Association for Energy Economics, vol. 0(Bollino-M).
    2. Frank A. Wolak, 2016. "Level versus Variability Trade-offs in Wind and Solar Generation Investments: The Case of California," NBER Working Papers 22494, National Bureau of Economic Research, Inc.
    3. Mancarella, Pierluigi, 2014. "MES (multi-energy systems): An overview of concepts and evaluation models," Energy, Elsevier, vol. 65(C), pages 1-17.
    4. Bartela, Łukasz & Skorek-Osikowska, Anna & Kotowicz, Janusz, 2015. "An analysis of the investment risk related to the integration of a supercritical coal-fired combined heat and power plant with an absorption installation for CO2 separation," Applied Energy, Elsevier, vol. 156(C), pages 423-435.
    5. Jochem, Patrick & Schönfelder, Martin & Fichtner, Wolf, 2015. "An efficient two-stage algorithm for decentralized scheduling of micro-CHP units," European Journal of Operational Research, Elsevier, vol. 245(3), pages 862-874.
    6. Liszka, Marcin & Malik, Tomasz & Budnik, Michał & Ziębik, Andrzej, 2013. "Comparison of IGCC (integrated gasification combined cycle) and CFB (circulating fluidized bed) cogeneration plants equipped with CO2 removal," Energy, Elsevier, vol. 58(C), pages 86-96.
    7. repec:eee:energy:v:134:y:2017:i:c:p:649-658 is not listed on IDEAS
    8. Palzer, Andreas & Westner, Günther & Madlener, Reinhard, 2013. "Evaluation of different hedging strategies for commodity price risks of industrial cogeneration plants," Energy Policy, Elsevier, vol. 59(C), pages 143-160.
    9. Lin, Boqiang & Wu, Ya & Zhang, Li, 2012. "Electricity saving potential of the power generation industry in China," Energy, Elsevier, vol. 40(1), pages 307-316.
    10. Beretta, Gian Paolo & Iora, Paolo & Ghoniem, Ahmed F., 2012. "Novel approach for fair allocation of primary energy consumption among cogenerated energy-intensive products based on the actual local area production scenario," Energy, Elsevier, vol. 44(1), pages 1107-1120.
    11. Ghaderi, A. & Parsa Moghaddam, M. & Sheikh-El-Eslami, M.K., 2014. "Energy efficiency resource modeling in generation expansion planning," Energy, Elsevier, vol. 68(C), pages 529-537.
    12. repec:eee:energy:v:148:y:2018:i:c:p:283-295 is not listed on IDEAS
    13. repec:eee:rensus:v:91:y:2018:i:c:p:729-740 is not listed on IDEAS
    14. Capuder, Tomislav & Mancarella, Pierluigi, 2014. "Techno-economic and environmental modelling and optimization of flexible distributed multi-generation options," Energy, Elsevier, vol. 71(C), pages 516-533.
    15. Verbruggen, Aviel & Dewallef, Pierre & Quoilin, Sylvain & Wiggin, Michael, 2013. "Unveiling the mystery of Combined Heat & Power (cogeneration)," Energy, Elsevier, vol. 61(C), pages 575-582.
    16. Kitzing, Lena, 2014. "Risk implications of renewable support instruments: Comparative analysis of feed-in tariffs and premiums using a mean–variance approach," Energy, Elsevier, vol. 64(C), pages 495-505.
    17. Daniel Ziegler & Katrin Schmitz & Christoph Weber, 2012. "Optimal electricity generation portfolios," Computational Management Science, Springer, vol. 9(3), pages 381-399, August.

    More about this item


    Combined heat and power; CHP technology; Portfolio optimization; Germany;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q49 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Other


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