Risk averse investment strategies for a private electricity generating company in a carbon constrained environment

Esra Adıyeke, Ethem Çanakoğlu and Semra Ağralı

Journal of the Operational Research Society, 2019, vol. 70, issue 12, 2056-2068

Abstract: We study a private electricity generating company that plans to enter a partially regulated market that operates under an active cap and trade system. There are different types of thermal and renewable power plants that the company considers to invest in over a predetermined planning horizon. Thermal power plants may include a carbon capture and storage technology in order to comply with the carbon limitations. We develop a time-consistent multi-stage stochastic optimization model for this investment problem, where the objective is to minimize the conditional value at risk (CV@R) of the net present value of the profit obtained through the planning horizon. We implement the model for a hypothetical generating company located in Turkey. The results show that the developed model is appropriate for determining risk averse investment strategies for a company that operates under carbon restricted market conditions.

Date: 2019
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DOI: 10.1080/01605682.2018.1535265

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