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

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.

Keywords:

• Risk averse investments
• energy investment problems
• conditional value at risk
• mixed-integer program

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by TUBITAK [grant no 114M358].