Given the uncertain environment in which utilities make their investment decisions, it makes sense to shift electricity planning from its current emphasis on evaluating alternative technologies to evaluating alternative electricity generating portfolios and strategies. The techniques for doing this are rooted in modern finance theory - in particular mean-variance portfolio theory, based on the pioneering work of Nobel Laureate Harry Markowitz 50 years ago. Portfolio analysis is widely used by financial investors to create low risk, high return portfolios under various economic conditions. In essence, investors have learned that an efficient portfolio takes no unnecessary risk to its expected return. In short, these investors define efficient portfolios as those that maximise the expected return for any given level of risk, while minimising risk for every level of expected return.
Portfolio theory is highly suited to the problem of planning and evaluating electricity portfolios and strategies because energy planning is not unlike investing in financial securities where financial portfolios are widely used by investors to manage risk and to maximise performance under a variety of unpredictable outcomes. Similarly, it is important to conceive of electricity generation not in terms of the cost of a particular technology today, but in terms of its portfolio cost. At any given time, some alternatives in the portfolio may have high costs while others have lower costs, yet over time, an astute combination of alternatives can serve to minimise overall generation cost relative to the risk. In sum, when portfolio theory is applied to electricity generation planning, conventional and renewable alternatives are not evaluated on the basis of their stand-alone cost, but on the basis of their portfolio cost - that is: their contribution to overall portfolio generating cost relative to their contribution to overall portfolio risk.
Portfolio-based electricity planning techniques thus suggest ways to develop diversified generating portfolios with known risk levels that are commensurate with their overall electricity generating costs. Simply put, these techniques help identify generating portfolios that can minimise a utility or society's energy price cost and risk.
Foreword by Dr. Pachauri, the 2007 winner of the Nobel Prize for Peace The book will give insights from world authorities in the area of electricity capacity planning, meaning that the book will be a trusted, first point of reference for decision makers in the field.
The book evaluates the role of renewables in enhancing energy diversity, giving readers alternative advice to traditional energy sources at a time when this advice is being actively sought.
This is an ideal volume for professionals in academia, industry and government interested in the rapidly evolving world of electricity planning and is written by experts from all three areas meaning that readers can relate to the contributors themselves and the situations they describe.
Edited by:
Morgan Bazilian,
Fabien Roques
Imprint: Elsevier Science Ltd
Country of Publication: United Kingdom
Dimensions:
Height: 234mm,
Width: 156mm,
Spine: 20mm
Weight: 800g
ISBN: 9780080568874
ISBN 10: 0080568874
Series: Elsevier Global Energy Policy and Economics Series
Pages: 364
Publication Date: 06 October 2008
Audience:
Professional and scholarly
,
Undergraduate
Format: Hardback
Publisher's Status: Active
Preface Foreword 1, R. Pachauri, TERI Foreword 2, Eddie O’Connor, Airtricity Reader's Guide, The Editors Introduction: Analytic Approaches to Quantify and Value Fuel Mix Diversity, The Editors Part I: Assessing Risks, Costs and Fuel Mix Diversity for Electric Utilities 1. Diversity and Sustainable Energy Transitions: Multicriteria Diversity Analysis of Electricity Portfolios, by Andy Stirling 2. The Value of Renewable Energy as a Hedge Against Fuel Price Risk: Analytic Contributions from Economic and Finance Theory, by Mark Bolinger and Ryan Wiser 3. Using Portfolio Theory to Value Power Generation Investments, by The Editors 4. Use of Real Options as a Policy-Analysis Tool, by William Blyth Part II: Applying Portfolio Theory to Identify Optimal Power Generation Portfolios 5. Efficient Electricity Generating Portfolios for Europe: Maximizing Energy Security and Climate Change Mitigation, by Shimon Awerbuch and Spencer Yang 6. Portfolio Analysis of the Future Dutch Generating Mix, by Jaap C. Jansen and Luuk Beurskens 7. The Role of Wind Generation in Enhancing Scotland’s Energy Diversity and Security: A Mean-Variance Portfolio Optimization of Scotland’s Generating Mix, by Shimon Awerbuch, In Collaboration with Jaap C. Jansen and Luuk Beurskens 8. Generation Portfolio Analysis for a Carbon Constrained and Uncertain Future, by Ronan Doherty, Hugh Outhred and Mark O’Malley 9. The Economics of Renewable Resource Credits, by Christiaan Hogendorn and Paul Kleindorfer Part III: Frontier Applications of the Mean-Variance Optimization Model for Electric Utilities Planning 10. Efficient and Secure Power for the United States and Switzerland, by Boris Krey and Peter Zweifel 11. Portfolio Optimiztion and Utilities’ Investments in Liberalized Power Markets, by Fabien A. Roques, David M. Newbery, William J. Nuttall 12. Risk Management in a Competitive Electricity Market, by Min Liu and Felix F. Wu 13. Application of Mean-variance Analysis to Locational Value of Generation Assets, by Serhiy Kotsan and Stratford Douglas 14. Risk, Embodied Technical Change and Irreversible Investment Decisions in UK Electricity Production: An Optimum Technology Portfolio Approach, by Adriaan van Zon and Sabine Fuss Index Shimon Awerbuch Biography Charity About the Editors
Reviews for Analytical Methods for Energy Diversity and Security: Portfolio Optimization in the Energy Sector: A Tribute to the work of Dr. Shimon Awerbuch
The world is at a point where it is critically important to make the right tradeoffs between different sources of energy. Shimon Awerbuch's unique contribution was to show how to do so rationally, in the face of fluctuating costs and risks. It was groundbreaking work, and its impact will only grow over time. --Michael Liebrich, CEO New Energy Finance Dr. Awerbuch's work helped the business and industry sectors to better understand the costs and risks of investing in renewable energy, an extremely important contribution. --James Cameron, Vice-Chairman, Climate Change Capital Shimon Awerbuch has made an invaluable contribution by bringing the perspectives of finance theory to bear on the practical problems of analysing risk in energy markets, showing that a risk efficient portfolio of technologies may look quite different from the least expected cost choice, and thus providing powerful arguments for diversity and the use of renewables. --Professor David Newberry, Cambridge University
