Risk aversion and technology mix in an electricity market

Guy Meunier

Post-Print from HAL

Abstract: This article analyzes the effect of risk and risk-aversion on the long-term equilibrium technology mix in an electricity market. It develops a model where firms can invest in baseload plants with a fixed variable cost and peak plants with a random variable cost, and demand for electricity varies over time but is perfectly predictable. At equilibrium the electricity price is partly determined by the random variable cost and the returns from the two kinds of plants are negatively correlated. When the variable cost of the peak technology is high the return of peak plants is low but the return to baseload plants is high. Risk-averse firms reduce the capacity of the riskiest technology and develop the capacity of the other, compared to risk-neutral firms. In the particular case where a risk-neutral firm invests heavily in baseload technology and only sparely in peak capacity, a risk-averse firm would invest less in baseload, increase peak capacity, and increase total installed capacity.

Keywords: risk aversion; technology choice; energy (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Published in Energy Economics, 2013, 40, pp.866-874. ⟨10.1016/j.eneco.2013.10.010⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Risk aversion and technology mix in an electricity market (2013)
Working Paper: Risk aversion and technology mix in an electricity market (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02646565

DOI: 10.1016/j.eneco.2013.10.010

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().