Including investment risk in large-scale power market models

Jørgen Kjærgaard Lemming, P. Meibom

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    Long-term energy market models can be used to examine investments in production technologies, however, with market liberalisation it is crucial that such models include investment risks and investor behaviour. This paper analyses how the effect of investment risk on production technology selection can be included in large-scale partial equilibrium models of the power market. The analyses are divided into a part about risk measures appropriate for power market investors and a more technical part about the combination of a risk-adjustment model and a partial-equilibrium model. To illustrate the analyses quantitatively, a framework based on an iterative interaction between the equilibrium model and a separate risk-adjustment module was constructed. To illustrate the features of the proposed modelling approach we examined how uncertainty in demand and variable costs affects the optimal choice of production technologies.
    Original languageEnglish
    JournalEnergy & Environment
    Volume14
    Issue number5
    Pages (from-to)599-626
    ISSN0958-305X
    DOIs
    Publication statusPublished - 2003

    Keywords

    • Investment Risk
    • Partial-Equilibrium Models
    • Value at Risk
    • Power Market Models
    • CO2 Emission Allowances

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