Perfect Competition vs. Riskaverse Agents: Technology Portfolio Choice in Electricity Markets

Malte Sunderkötter (malte.sunderkoetter@stud.uni-due.de) and Daniel Ziegler (daniel.ziegler@uni-due.de)
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Daniel Ziegler: Chair for Management Sciences and Energy Economics, University of Duisburg-Essen

No 1303, EWL Working Papers from University of Duisburg-Essen, Chair for Management Science and Energy Economics

Abstract: Investments in power generation assets are risky due to high construction costs and long asset lifetimes. Technology diversification in generation portfolios represents one option to reduce long-term investment risks for risk-averse decision makers. In this article, we analyze the impact of market imperfections induced by risk-aversion on the long-term investment portfolio structure in the market. We show that risk-averse electricity market agents who receive a managerial profit share may shift the technology structure in the market significantly away from the welfare optimum. A numerical example provides estimates on the potential scale of this effect and discusses sensitivities of key parameters.

Keywords: Nodal Pricing; Market Design; Electricity Markets (search for similar items in EconPapers)
JEL-codes: C45 G11 L94 Q43 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2013-04, Revised 2013-04
New Economics Papers: this item is included in nep-ene and nep-upt
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Citations: View citations in EconPapers (1)

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