Applying portfolio theory on the electricity sector: Installed capacity versus actual electricity generation

Portfolio theory has found its way in numerous applications for optimizing the electricity generation mix. Existing models, however, consider typically a single time period and correspondingly do not account properly for actual dispatch constraints and energy sources with a variable output. This paper presents a portfolio theory model that explicitly distinguishes between installed capacity (power) and actual electricity generation (energy). This way, the variability of wind power and the ramp limits of conventional power plants can be correctly taken into account in the investment optimization. The model is written as a quadratically constrained programming problem and used in a case study to optimize the Belgian generation mix.status: publishe