Policy Making for Generation Expansion Planning by means of Portfolio Theory; Case Study of Iran

Farid Adabi, Babak Mozafari, Ali Mohammad Ranjbar, Soodabeh Soleymani


Given the pivotal role of electrical energy in any country’s socio-economic indicators and considering the complex structure power system, one of the prominent priorities of power industry policy makers appears to be expansion planning especially in generation section. Keeping in mind the intensely fluctuations of electrical energy generation costs, particularly those of fuel prices within the recent years and in the Middle East area, it looks impossible to opt for an optimal generation portfolio regardless of the risk of costs variations.  Portfolio theory, as an efficient tool for risk management, provides a proper solution as to materializing the highest return, in view of the maximum acceptable risk, or contrariwise, the least amount of risk in view of the minimum expected return. This article aims to study the application of the theory in a challenge to formulate the optimal generation technologies portfolio, based on historical data on a span of 10 years in Iran. Meanwhile, it tries to study the effect of renewable energy resources on the optimal composition. The results of simulations indicate that the presence of renewable energy resources in the generation portfolio, ends in risk diminish for a specified expected return. This turns out to be a non-linear optimization problem; and GAMS and MATLAB software applications were put to use to solve it.  

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Power Industry Policy-making, Portfolio Theory, Renewable Energy Resources, Risk Management.

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