IDEAS home Printed from https://ideas.repec.org/a/eee/renene/v162y2020icp1161-1176.html
   My bibliography  Save this article

Stochastic model to aid decision making on investments in renewable energy generation: Portfolio diffusion and investor risk aversion

Author

Listed:
  • de Freitas, Renan Alves
  • Vogel, Ederson Paulo
  • Korzenowski, André Luis
  • Oliveira Rocha, Luiz Alberto

Abstract

Brazil has a different energy matrix from the world, from electricity generation with renewable resources. With the increase in energy demand, environmental problems of hydroelectric plants show a need to increase the installed capacity of renewable sources. Investments in renewable generation are required, decision affected by different aspects, such as variability in generation, uncertainties in the energy market and investor risk aversion, the company’s current portfolio. The paper presents a stochastic decision support model for renewable energy investments, maximizing the expected return for a given level of risk aversion. To assess uncertainties, the Conditional Value-at-Risk (CVaR) is used. Scenarios are generated based on past generation and NEWAVE output data. Simulations with the investment option are related in this energy complementation. The risk for intermittent source involves the company using CVaR assessment. The results conclude that the diversification of the firm’s assets and the complementary composition of the sources of generation reduce the investor’s portfolio’s financial risks and the risk aversion level of the decision maker influences the market position that the company must adopt. Model tending to more conservative solutions when risk aversion is higher, confirming the literature, the existence of a trade-off between risk aversion and expected return.

Suggested Citation

  • de Freitas, Renan Alves & Vogel, Ederson Paulo & Korzenowski, André Luis & Oliveira Rocha, Luiz Alberto, 2020. "Stochastic model to aid decision making on investments in renewable energy generation: Portfolio diffusion and investor risk aversion," Renewable Energy, Elsevier, vol. 162(C), pages 1161-1176.
    • Handle: RePEc:eee:renene:v:162:y:2020:i:c:p:1161-1176
    DOI: 10.1016/j.renene.2020.08.012
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S096014812031243X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.renene.2020.08.012?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shimon Awerbuch, 2006. "Portfolio-Based Electricity Generation Planning: Policy Implications For Renewables And Energy Security," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 11(3), pages 693-710, May.
    2. Sinsel, Simon R. & Yan, Xuqian & Stephan, Annegret, 2019. "Building resilient renewable power generation portfolios: The impact of diversification on investors’ risk and return," Applied Energy, Elsevier, vol. 254(C).
    3. Angelopoulos, Dimitrios & Doukas, Haris & Psarras, John & Stamtsis, Giorgos, 2017. "Risk-based analysis and policy implications for renewable energy investments in Greece," Energy Policy, Elsevier, vol. 105(C), pages 512-523.
    4. Olmos, Luis & Ruester, Sophia & Liong, Siok-Jen, 2012. "On the selection of financing instruments to push the development of new technologies: Application to clean energy technologies," Energy Policy, Elsevier, vol. 43(C), pages 252-266.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xin-gang, Zhao & Yi, Zuo & Hui, Wang & Zhen, Wang, 2022. "How can the cost and effectiveness of renewable portfolio standards be coordinated? Incentive mechanism design from the coevolution perspective," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    2. Rafael Bambirra & Lais Schiavo & Marina Lima & Giovanna Miranda & Iolanda Reis & Michael Cassemiro & Antônio Andrade & Fernanda Laender & Rafael Silva & Douglas Vieira & Petr Ekel, 2023. "Robust Multiobjective Decision Making in the Acquisition of Energy Assets," Energies, MDPI, vol. 16(16), pages 1-21, August.
    3. Ying, Zhou & Xin-gang, Zhao & Lei, Xu, 2022. "Supply side incentive under the Renewable Portfolio Standards: A perspective of China," Renewable Energy, Elsevier, vol. 193(C), pages 505-518.
    4. He, Shuaijia & Gao, Hongjun & Tang, Zao & Chen, Zhe & Jin, Xiaolong & Liu, Junyong, 2023. "Worst CVaR based energy management for generalized energy storage enabled building-integrated energy systems," Renewable Energy, Elsevier, vol. 203(C), pages 255-266.
    5. József Magyari & Krisztina Hegedüs & Botond Sinóros-Szabó, 2022. "Integration Opportunities of Power-to-Gas and Internet-of-Things Technical Advancements: A Systematic Literature Review," Energies, MDPI, vol. 15(19), pages 1-19, September.
    6. Munir Younes Soares & Dorel Soares Ramos & Margareth de Oliveira Pavan & Fabio A. Diuana, 2023. "Barriers to the Expansion of Sugarcane Bioelectricity in Brazilian Energy Transition," Energies, MDPI, vol. 16(2), pages 1-18, January.
    7. Min Song & Yu Wang & Yong Long, 2022. "Investment and Production Strategies of Renewable Energy Power under the Quota and Green Power Certificate System," Energies, MDPI, vol. 15(11), pages 1-24, June.
    8. Wenjiao Zai & Yuying He & Huazhang Wang, 2023. "Risk Prediction Method for Renewable Energy Investments Abroad Based on Cloud-DBN," Sustainability, MDPI, vol. 15(14), pages 1-18, July.
    9. Mimica, Marko & Giménez de Urtasun, Laura & Krajačić, Goran, 2022. "A robust risk assessment method for energy planning scenarios on smart islands under the demand uncertainty," Energy, Elsevier, vol. 240(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Emmanuel Ebo Arthur & Solomon Gyamfi & Wolfgang Gerstlberger & Jan Stejskal & Viktor Prokop, 2023. "Towards Circular Economy: Unveiling Heterogeneous Effects of Government Policy Stringency, Environmentally Related Innovation, and Human Capital within OECD Countries," Sustainability, MDPI, vol. 15(6), pages 1-18, March.
    2. Vithayasrichareon, Peerapat & MacGill, Iain F., 2013. "Assessing the value of wind generation in future carbon constrained electricity industries," Energy Policy, Elsevier, vol. 53(C), pages 400-412.
    3. Awerbuch, Shimon & Sauter, Raphael, 2006. "Exploiting the oil-GDP effect to support renewables deployment," Energy Policy, Elsevier, vol. 34(17), pages 2805-2819, November.
    4. Hong, Sanghyun & Bradshaw, Corey J.A. & Brook, Barry W., 2014. "South Korean energy scenarios show how nuclear power can reduce future energy and environmental costs," Energy Policy, Elsevier, vol. 74(C), pages 569-578.
    5. Siqi Li & Rongrong Li, 2017. "Energy Sustainability Evaluation Model Based on the Matter-Element Extension Method: A Case Study of Shandong Province, China," Sustainability, MDPI, vol. 9(11), pages 1-9, November.
    6. Wadim Strielkowski & Dalia Streimikiene & Alena Fomina & Elena Semenova, 2019. "Internet of Energy (IoE) and High-Renewables Electricity System Market Design," Energies, MDPI, vol. 12(24), pages 1-17, December.
    7. Wüstenhagen, Rolf & Menichetti, Emanuela, 2012. "Strategic choices for renewable energy investment: Conceptual framework and opportunities for further research," Energy Policy, Elsevier, vol. 40(C), pages 1-10.
    8. Fuss, Sabine & Szolgayová, Jana & Khabarov, Nikolay & Obersteiner, Michael, 2012. "Renewables and climate change mitigation: Irreversible energy investment under uncertainty and portfolio effects," Energy Policy, Elsevier, vol. 40(C), pages 59-68.
    9. Muñoz, José Ignacio & Sánchez de la Nieta, Agustín A. & Contreras, Javier & Bernal-Agustín, José L., 2009. "Optimal investment portfolio in renewable energy: The Spanish case," Energy Policy, Elsevier, vol. 37(12), pages 5273-5284, December.
    10. Rentizelas, Athanasios & Georgakellos, Dimitrios, 2014. "Incorporating life cycle external cost in optimization of the electricity generation mix," Energy Policy, Elsevier, vol. 65(C), pages 134-149.
    11. F.H.J. Polzin & M.W.J.L. Sanders, 2019. "How to fill the ‘financing gap’ for the transition to low-carbon energy in Europe?," Working Papers 19-18, Utrecht School of Economics.
    12. Hirsh Bar Gai, Dor & Shittu, Ekundayo & Attanasio, Donna & Weigelt, Carmen & LeBlanc, Saniya & Dehghanian, Payman & Sklar, Scott, 2021. "Examining community solar programs to understand accessibility and investment: Evidence from the U.S," Energy Policy, Elsevier, vol. 159(C).
    13. Löschel, Andreas & Moslener, Ulf & Rübbelke, Dirk T.G., 2010. "Indicators of energy security in industrialised countries," Energy Policy, Elsevier, vol. 38(4), pages 1665-1671, April.
    14. Wang, Hsiao-Fan & Sung, Meng-Ping & Hsu, Hsin-Wei, 2016. "Complementarity and substitution of renewable energy in target year energy supply-mix plannin–in the case of Taiwan," Energy Policy, Elsevier, vol. 90(C), pages 172-182.
    15. Fagiani, Riccardo & Barquín, Julián & Hakvoort, Rudi, 2013. "Risk-based assessment of the cost-efficiency and the effectivity of renewable energy support schemes: Certificate markets versus feed-in tariffs," Energy Policy, Elsevier, vol. 55(C), pages 648-661.
    16. Lee, Chien-Chiang & Chen, Mei-Ping & Yuan, Zihao, 2023. "Is information and communication technology a driver for renewable energy?," Energy Economics, Elsevier, vol. 124(C).
    17. Arash Farnoosh, 2016. "On the economic optimization of national power generation mix in Iran: A Markowitz' portfolio-based approach," Working Papers hal-02475534, HAL.
    18. Aleh Cherp & Jessica Jewell, 2013. "Energy security assessment framework and three case studies," Chapters, in: Hugh Dyer & Maria Julia Trombetta (ed.), International Handbook of Energy Security, chapter 8, pages 146-173, Edward Elgar Publishing.
    19. repec:use:tkiwps:11 is not listed on IDEAS
    20. Emanuele Campiglio & Alessandro Spiganti & Anthony Wiskich, 2023. "Clean Innovation and Heterogeneous Financing Costs," CAMA Working Papers 2023-25, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University, revised Oct 2023.
    21. Inzunza, Andrés & Muñoz, Francisco D. & Moreno, Rodrigo, 2021. "Measuring the effects of environmental policies on electricity markets risk," Energy Economics, Elsevier, vol. 102(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:renene:v:162:y:2020:i:c:p:1161-1176. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/renewable-energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.