Assessing Renewable Energy Sources for Electricity (RES-E) Potential Using a CAPM-Analogous Multi-Stage Model

Paulino Martinez-Fernandez, Fernando deLlano-Paz, Anxo Calvo-Silvosa and Isabel Soares
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Paulino Martinez-Fernandez: Department of Business, Faculty of Economics and Business, University of A Coruna, Campus de Elvina, 15071 A Coruna, Spain
Fernando deLlano-Paz: Department of Business, Faculty of Economics and Business, University of A Coruna, Campus de Elvina, 15071 A Coruna, Spain
Anxo Calvo-Silvosa: Department of Business, Faculty of Economics and Business, University of A Coruna, Campus de Elvina, 15071 A Coruna, Spain
Isabel Soares: Department of Economy, Faculty of Economics and CEF.UP, University of Porto, Rua Dr. Roberto Frias, 4200-464 Porto, Portugal

Energies, 2019, vol. 12, issue 19, 1-20

Abstract: Carbon mitigation is a major aim of the power-generation regulation. Renewable energy sources for electricity are essential to design a future low-carbon mix. In this work, financial Modern Portfolio Theory (MPT) is implemented to optimize the power-generation technologies portfolio. We include technological and environmental restrictions in the model. The optimization is carried out in two stages. Firstly, we minimize the cost and risk of the generation portfolio, and afterwards, we minimize its emission factor and risk. By combining these two results, we are able to draw an area which can be considered analogous to the Capital Market Line (CML) used by the Capital Asset Pricing model (CAPM). This area delimits the set of long-term power-generation portfolios that can be selected to achieve a progressive decarbonisation of the mix. This work confirms the relevant role of small hydro, offshore wind, and large hydro as preferential technologies in efficient portfolios. It is necessary to include all available renewable technologies in order to reduce the cost and the risk of the portfolio, benefiting from the diversification effect. Additionally, carbon capture and storage technologies must be available and deployed if fossil fuel technologies remain in the portfolio in a low-carbon approach.

Keywords: energy planning; Modern Portfolio Theory (MPT); Capital Asset Pricing Model (CAPM); low-carbon economy; renewable energy deployment; environmental efficiency (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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