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Facing the uncertainty of renewable energy production: Production decisions of a power plant with different risk attitudes

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  • Fan, Zhi-Ping
  • Cai, Siqin
  • Guo, Dongliang
  • Xu, Bo

Abstract

This paper studies the production decisions of a power plant with two different risk attitudes, in which the power plant faces the risks of uncertainty in renewable energy production, and two types of risk attitudes are considered, namely, risk neutrality and risk aversion. First, we construct the optimization models of a power plant with two different risk attitudes under the Feed-in-Tariffs (FIT) policy, and obtain the optimal outcomes by solving the models, including the optimal output and the expected profit. Then, by comparing the optimal outcomes under the two risk attitudes, we reveal the impacts of the different risk attitudes of power plants on their power production decisions. In addition, we also give an extended study to analyze the change from the FIT policy to the market-oriented Tradable Green Certificates (TGC) policy. The results show that the expected profit of the power plant decreases if it switches from risk-neutral to risk-averse, and the fossil energy output of the risk-neutral power plant is higher than that of the risk-averse power plant if the difference between the levelized costs of renewable energy and fossil energy exceeds a certain threshold.

Suggested Citation

  • Fan, Zhi-Ping & Cai, Siqin & Guo, Dongliang & Xu, Bo, 2022. "Facing the uncertainty of renewable energy production: Production decisions of a power plant with different risk attitudes," Renewable Energy, Elsevier, vol. 199(C), pages 1237-1247.
    • Handle: RePEc:eee:renene:v:199:y:2022:i:c:p:1237-1247
    DOI: 10.1016/j.renene.2022.09.064
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