Risk-return incentives in liberalised electricity markets
Risk-return incentives in liberalised electricity markets / Richard S.J. Tol, Muireann Lynch, Aonghus Shortt & Mark O’Malley. Department of Economics. University of Sussex, 2012, 17 p. (Economics Department Working Paper Series No. 40-2012)
We employ Monte Carlo analysis to determine the distribution of returns for various electricity generation technologies. Costs and revenues for each technology are arrived by means of a sophisticated unit commitment and economic dispatch algorithm. The results show that small amounts of coal investment along with high investment in advanced CCGT can reduce the risk of baseload-only portfolios, while flexible generation technologies appear on the efficient frontier when all technology types are considered. Diversification incentives regarding operational considerations dominate over incentives to diversify between fuel types.