Optimal investment portfolio strategies for power enterprises under multi-policy scenarios of renewable energy

Mingming Zhang, Yamei Tang, Liyun Liu and Dequn Zhou

Renewable and Sustainable Energy Reviews, 2022, vol. 154, issue C

Abstract: Planning a portfolio that includes different power generation technologies is an important method to ensure expected value and to reduce risks for the project investment of electric-power enterprises. This paper evaluates the optimal investment portfolio strategies implemented by electric power enterprises by using real option and portfolio optimization methods. The real options method is used to generate investment values and their distribution. These serve as the input variables of the portfolio optimization model. The portfolio optimization model is built based on the conditional value at risk. The optimal investment is analyzed by considering four policy scenarios: different expected investment values, the phase-out of subsidies, tightened carbon reduction standards, and different initial renewable energy certificate prices. A case study is conducted to analyze the investment decision of an electric power enterprise in China. The results show the optimal investment portfolio strategy, the investment value, and the conditional value at risk. The optimal decision for ensuring a relatively high expected value while reducing risks is to increase the share of solar PV power generation and wind power generation in current conditions. Tightened carbon reduction standards and higher renewable energy certificates prices are conductive to increase the investment value, reduce the risk of loss and increase the share of renewable energy power generation. In contrast, the phase-out of the subsidies had the opposite effect. The methodology and results can provide a reference for investors to guide the formulation of the optimal investment decision and for the government to optimize the policy effect.

Keywords: Investment portfolio optimization; Real options; Multi-policy scenarios; Conditional value at risk (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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DOI: 10.1016/j.rser.2021.111879

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