Carbon price risk influence on GenCo's portfolio optimization

Parul Mathuria, Rohit Bhakar

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

Worldwide stress on low carbon economy and reducing aggregate CO2 emission levels exposed fossil fuel GenCos to carbon risk associated with prices of carbon permits needed to be environmentally compliant. This risk is substantial for fossil fuel GenCos aiming to maximize profit. This paper addresses a power portfolio optimization approach for a fossil fuel GenCo to maximize profit and minimize risk of volatile input costs and output revenue. Carbon price risk along with fuel and electricity price risk with correlation between all revenue and cost side markets has been considered for portfolio selection using Markowitz mean variance theory. A realistic case study on Nordpool market illustrate that carbon price uncertainty considerations alter trading decision of GenCo in electricity market for efficient risk management. Correlated revenue and cost side markets provides better tradeoff in terms of profit and risk for same risk averse level for GenCo. Under strong correlation of electricity and carbon market a higher allocation in spot market provides risk protection. The carbon price risk impact is prominent for high emission GenCos.

Original languageEnglish
Title of host publication2014 18th National Power Systems Conference, NPSC 2014
PublisherIEEE
Pages1 - 6
Number of pages6
ISBN (Print)9781479951413
DOIs
Publication statusPublished - 7 May 2015
Event2014 18th National Power Systems Conference, NPSC 2014 - Guwahati, India
Duration: 18 Dec 201420 Dec 2014

Conference

Conference2014 18th National Power Systems Conference, NPSC 2014
CountryIndia
CityGuwahati
Period18/12/1420/12/14

Fingerprint

Carbon
Fossil fuels
Profitability
Electricity
Costs
Risk management

Keywords

  • carbon price risk
  • Electricity price risk
  • fuel price risk
  • mean variance portfolio theory

Cite this

Mathuria, P., & Bhakar, R. (2015). Carbon price risk influence on GenCo's portfolio optimization. In 2014 18th National Power Systems Conference, NPSC 2014 (pp. 1 - 6). [7103805] IEEE. https://doi.org/10.1109/NPSC.2014.7103805

Carbon price risk influence on GenCo's portfolio optimization. / Mathuria, Parul; Bhakar, Rohit.

2014 18th National Power Systems Conference, NPSC 2014. IEEE, 2015. p. 1 - 6 7103805.

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Mathuria, P & Bhakar, R 2015, Carbon price risk influence on GenCo's portfolio optimization. in 2014 18th National Power Systems Conference, NPSC 2014., 7103805, IEEE, pp. 1 - 6, 2014 18th National Power Systems Conference, NPSC 2014, Guwahati, India, 18/12/14. https://doi.org/10.1109/NPSC.2014.7103805
Mathuria P, Bhakar R. Carbon price risk influence on GenCo's portfolio optimization. In 2014 18th National Power Systems Conference, NPSC 2014. IEEE. 2015. p. 1 - 6. 7103805 https://doi.org/10.1109/NPSC.2014.7103805
Mathuria, Parul ; Bhakar, Rohit. / Carbon price risk influence on GenCo's portfolio optimization. 2014 18th National Power Systems Conference, NPSC 2014. IEEE, 2015. pp. 1 - 6
@inproceedings{74233a36d0494683bca3b59f3d7735db,
title = "Carbon price risk influence on GenCo's portfolio optimization",
abstract = "Worldwide stress on low carbon economy and reducing aggregate CO2 emission levels exposed fossil fuel GenCos to carbon risk associated with prices of carbon permits needed to be environmentally compliant. This risk is substantial for fossil fuel GenCos aiming to maximize profit. This paper addresses a power portfolio optimization approach for a fossil fuel GenCo to maximize profit and minimize risk of volatile input costs and output revenue. Carbon price risk along with fuel and electricity price risk with correlation between all revenue and cost side markets has been considered for portfolio selection using Markowitz mean variance theory. A realistic case study on Nordpool market illustrate that carbon price uncertainty considerations alter trading decision of GenCo in electricity market for efficient risk management. Correlated revenue and cost side markets provides better tradeoff in terms of profit and risk for same risk averse level for GenCo. Under strong correlation of electricity and carbon market a higher allocation in spot market provides risk protection. The carbon price risk impact is prominent for high emission GenCos.",
keywords = "carbon price risk, Electricity price risk, fuel price risk, mean variance portfolio theory",
author = "Parul Mathuria and Rohit Bhakar",
year = "2015",
month = "5",
day = "7",
doi = "10.1109/NPSC.2014.7103805",
language = "English",
isbn = "9781479951413",
pages = "1 -- 6",
booktitle = "2014 18th National Power Systems Conference, NPSC 2014",
publisher = "IEEE",
address = "USA United States",

}

TY - GEN

T1 - Carbon price risk influence on GenCo's portfolio optimization

AU - Mathuria, Parul

AU - Bhakar, Rohit

PY - 2015/5/7

Y1 - 2015/5/7

N2 - Worldwide stress on low carbon economy and reducing aggregate CO2 emission levels exposed fossil fuel GenCos to carbon risk associated with prices of carbon permits needed to be environmentally compliant. This risk is substantial for fossil fuel GenCos aiming to maximize profit. This paper addresses a power portfolio optimization approach for a fossil fuel GenCo to maximize profit and minimize risk of volatile input costs and output revenue. Carbon price risk along with fuel and electricity price risk with correlation between all revenue and cost side markets has been considered for portfolio selection using Markowitz mean variance theory. A realistic case study on Nordpool market illustrate that carbon price uncertainty considerations alter trading decision of GenCo in electricity market for efficient risk management. Correlated revenue and cost side markets provides better tradeoff in terms of profit and risk for same risk averse level for GenCo. Under strong correlation of electricity and carbon market a higher allocation in spot market provides risk protection. The carbon price risk impact is prominent for high emission GenCos.

AB - Worldwide stress on low carbon economy and reducing aggregate CO2 emission levels exposed fossil fuel GenCos to carbon risk associated with prices of carbon permits needed to be environmentally compliant. This risk is substantial for fossil fuel GenCos aiming to maximize profit. This paper addresses a power portfolio optimization approach for a fossil fuel GenCo to maximize profit and minimize risk of volatile input costs and output revenue. Carbon price risk along with fuel and electricity price risk with correlation between all revenue and cost side markets has been considered for portfolio selection using Markowitz mean variance theory. A realistic case study on Nordpool market illustrate that carbon price uncertainty considerations alter trading decision of GenCo in electricity market for efficient risk management. Correlated revenue and cost side markets provides better tradeoff in terms of profit and risk for same risk averse level for GenCo. Under strong correlation of electricity and carbon market a higher allocation in spot market provides risk protection. The carbon price risk impact is prominent for high emission GenCos.

KW - carbon price risk

KW - Electricity price risk

KW - fuel price risk

KW - mean variance portfolio theory

UR - http://www.scopus.com/inward/record.url?scp=84937148239&partnerID=8YFLogxK

UR - http://dx.doi.org/10.1109/NPSC.2014.7103805

UR - http://ieeexplore.ieee.org/xpl/articleDetails.jsp?arnumber=7103805&newsearch=true&queryText=carbon%20price%20risk%20influence%20on%20GenCo's%20portfolio%20optimization

U2 - 10.1109/NPSC.2014.7103805

DO - 10.1109/NPSC.2014.7103805

M3 - Conference contribution

SN - 9781479951413

SP - 1

EP - 6

BT - 2014 18th National Power Systems Conference, NPSC 2014

PB - IEEE

ER -