Efficient provision of electricity for the United States and Switzerland

Boris Krey (), Philippe K. Widmer () and Peter Zweifel ()
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Boris Krey: Department of Economics, University of Zurich
Philippe K. Widmer: Department of Economics, University of Zurich
Peter Zweifel: Department of Economics, University of Zurich

No 812, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: This study applies financial portfolio theory to determine efficient frontiers in the provision of electricity for the United States and Switzerland. Expected returns are defined by the rate of productivity increase of power generation (adjusted for external costs), volatility, by its standard deviation. Since unobserved productivity shocks are found to be correlated, Seemingly Unrelated Regression Estimation (SURE) is used to filter out the systematic component of the covariance matrix of the productivity changes. Results suggest that as of 2003, the feasible maximum expected return (MER) electricity portfolio for the United States contains more Coal, Nuclear, and Wind than actual but markedly less Gas and Oil. The minimum variance (MV) portfolio contains markedly more Oil, again more Coal, Nuclear, and Wind but almost no Gas. Regardless of the choice between MER and MV, U.S. utilities are found to lie substantially inside the efficient frontier. This is even more true of their Swiss counterparts, likely due to continuing regulation of electricity markets.

Keywords: efficiency frontier; energy; electricity; portfolio theory; Seemingly Unrelated Regression Estimation (SURE) (search for similar items in EconPapers)
JEL-codes: C32 G11 Q49 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2008-10, Revised 2011-12
New Economics Papers: this item is included in nep-ene
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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