Optimal selection of distributed energy resources under uncertainty and risk aversion

The adoption of small-scale electricity generation has been hindered by uncertain electricity and gas prices. In order to overcome this barrier to investment, we develop a mean-risk optimization model for the long-term risk management problem of an energy consumer using stochastic programming. The c...

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Main Authors: MAUROVICH-HORVAT, Lajos, DE REYCK, Bert, ROCHA, Paula
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Language:English
Published: Institutional Knowledge at Singapore Management University 2016
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/6763
https://ink.library.smu.edu.sg/context/lkcsb_research/article/7741/viewcontent/CHPInv_6Jul2016.pdf
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spelling sg-smu-ink.lkcsb_research-77412021-08-30T01:34:34Z Optimal selection of distributed energy resources under uncertainty and risk aversion MAUROVICH-HORVAT, Lajos DE REYCK, Bert ROCHA, Paula The adoption of small-scale electricity generation has been hindered by uncertain electricity and gas prices. In order to overcome this barrier to investment, we develop a mean-risk optimization model for the long-term risk management problem of an energy consumer using stochastic programming. The consumer can invest in a number of generation technologies, and also has access to electricity and gas futures to reduce its risk. We examine the role of on-site generation in the consumer's risk management strategy, as well as interactions between on-site generation and financial hedges. Our study shows that by swapping electricity (with high price volatility) for gas (with low price volatility), even relatively inefficient technologies reduce risk exposure and CO 2 emissions. The capability of on-site generation is enhanced through the use of combined heat and power (CHP) applications. In essence, by investing in a CHP unit, a consumer obtains the option to use on-site generation whenever the electricity price peaks, thereby reducing its financial risk. Finally, in contrast to the extant literature, we demonstrate that on-site generation affects the consumer's decision to purchase financial hedges. In particular, while on-site generation and electricity futures may act as substitutes, on-site generation and gas futures can function as complements. 2016-08-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/lkcsb_research/6763 info:doi/10.1109/TEM.2016.2592805 https://ink.library.smu.edu.sg/context/lkcsb_research/article/7741/viewcontent/CHPInv_6Jul2016.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Business Administration, Management, and Operations
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Business Administration, Management, and Operations
spellingShingle Business Administration, Management, and Operations
MAUROVICH-HORVAT, Lajos
DE REYCK, Bert
ROCHA, Paula
Optimal selection of distributed energy resources under uncertainty and risk aversion
description The adoption of small-scale electricity generation has been hindered by uncertain electricity and gas prices. In order to overcome this barrier to investment, we develop a mean-risk optimization model for the long-term risk management problem of an energy consumer using stochastic programming. The consumer can invest in a number of generation technologies, and also has access to electricity and gas futures to reduce its risk. We examine the role of on-site generation in the consumer's risk management strategy, as well as interactions between on-site generation and financial hedges. Our study shows that by swapping electricity (with high price volatility) for gas (with low price volatility), even relatively inefficient technologies reduce risk exposure and CO 2 emissions. The capability of on-site generation is enhanced through the use of combined heat and power (CHP) applications. In essence, by investing in a CHP unit, a consumer obtains the option to use on-site generation whenever the electricity price peaks, thereby reducing its financial risk. Finally, in contrast to the extant literature, we demonstrate that on-site generation affects the consumer's decision to purchase financial hedges. In particular, while on-site generation and electricity futures may act as substitutes, on-site generation and gas futures can function as complements.
format text
author MAUROVICH-HORVAT, Lajos
DE REYCK, Bert
ROCHA, Paula
author_facet MAUROVICH-HORVAT, Lajos
DE REYCK, Bert
ROCHA, Paula
author_sort MAUROVICH-HORVAT, Lajos
title Optimal selection of distributed energy resources under uncertainty and risk aversion
title_short Optimal selection of distributed energy resources under uncertainty and risk aversion
title_full Optimal selection of distributed energy resources under uncertainty and risk aversion
title_fullStr Optimal selection of distributed energy resources under uncertainty and risk aversion
title_full_unstemmed Optimal selection of distributed energy resources under uncertainty and risk aversion
title_sort optimal selection of distributed energy resources under uncertainty and risk aversion
publisher Institutional Knowledge at Singapore Management University
publishDate 2016
url https://ink.library.smu.edu.sg/lkcsb_research/6763
https://ink.library.smu.edu.sg/context/lkcsb_research/article/7741/viewcontent/CHPInv_6Jul2016.pdf
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