Efficient Investment Portfolios for the Swiss Electricity Supply Sector

Reinhard Madlener and Christioph Wenk ()
Additional contact information
Christioph Wenk: Swiss Banking Institute, University of Zurich

No 2/2008, FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN)

Abstract: In this paper, we investigate existing and possible future power generation capacities in Switzerland from a risk-return perspective, using the Mean-Variance Portfolio Theory of Markowitz (1952). The study covers power generation technologies currently in operation, such as nuclear power, storage hydro power and run-of-river hydro power plants, and two new renewable energy technologies (photovoltaics and wind). Additionally, natural gas combined cycle (NGCC) technology, a possible extension to the current Swiss portfolio, is assessed. The technology-specific risks considered include electricity spot market price, production capacity and reliability, fuel cost, funding liabilities, and operation and maintenance outlays. These factors are implemented in a Net Present Value (NPV) model and Monte Carlo simulations are applied to assess each investment alternative. The lifetime-adjusted average return, together with the return-specific variance, forms the basis for the portfolio optimization conducted in the second stage of the analysis. The minimum variance (or maximum return) optimization is performed separately for base-load and peak-load technology portfolios. By defining different scenarios for the upper and lower bound for each technology's share, we simulate different situations, enabling us both, to explain the risk-return profile of the current technology mix, and to make predictions for future portfolios. Our NPV calculations are in line with currently observed returns and, by imposing some reasonable restrictions, the model performs sufficiently well in terms of explaining past portfolio compositions. Moreover, our predicted optimal outcome matches quite nicely with the debated options for enlarging power production in Switzerland.

Keywords: Portfolio optimization; Peak load demand; Electricity supply; Switzerland (search for similar items in EconPapers)
JEL-codes: G11 Q42 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2008-08
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.fcn.eonerc.rwth-aachen.de/global/show_document.asp?id=aaaaaaaaaagvuvu Full text (application/pdf)

Related works:
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:ris:fcnwpa:2008_002

Access Statistics for this paper

More papers in FCN Working Papers from E.ON Energy Research Center, Future Energy Consumer Needs and Behavior (FCN) Contact information at EDIRC.
Bibliographic data for series maintained by Hendrik Schmitz ().