Analyzing the Suitability and Role of Modern Portfolio Theory for Renewable Energy Planning

DeLlano-Paz, Fernando; Afonso Arévalo, Javier Eduardo; Iglesias-Gómez, Guillermo

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http://hdl.handle.net/2183/40127

Analyzing the Suitability and Role of Modern Portfolio Theory for Renewable Energy Planning

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DeLlano_Paz_Fernando_2023_Analyzing_suitability_role_modern_portfolio.pdf (968.05 KB)

Identifiers

URI: http://hdl.handle.net/2183/40127

DOI: https://doi.org/10.4337/9781800379022.00023

Publication date

2023

Authors

DeLlano-Paz, Fernando

Afonso Arévalo, Javier Eduardo

Iglesias-Gómez, Guillermo

Bibliographic citation

DeLlano Paz, F., Afonso Arévalo, J. & Iglesias Gómez, G. (2023). Analyzing the suitability and role of modern portfolio theory for renewable energy planning. En Pablo del Río & Mario Ragwitz (Eds.), Handbook on the Economics of Renewable Energy (pp. 308-339). Edward Elgar Publishing. https://doi.org/10.4337/9781800379022.00023

Abstract

[Abstract] In this chapter, the Modern Portfolio Theory -MPT- (Markowitz, 1952) is presented as a valid and proven methodology for the evaluation of investment projects in electricity generation plants, in the field of energy planning. The MPT, based on the trade-off between the cost/risk of technologies, offers a quadratic optimisation model useful for designing the portfolio of technologies and associated energy resources in the medium-long term for any territory. Renewable Energy Sources for Electricity (RES-E) are interesting options from the point of view of reducing portfolio risk, due to the absence of the cost of fossil fuels, characterised by high volatility. This is combined with the indigenous character and energy independence-security goal offered by RES-E, considering the uncertainty context of the geo-strategy of each territory. A practical application of MPT to the German and Spanish mixes for 2030, 2040 and 2050 horizons is also proposed in this chapter.