Applying Load Factors to the Mean-Variance Analysis for Fuel Diversification

Ruangpattana, Suriya, Gotham, Douglas J, Muthuraman, Kumar, Preckel, Paul V and Rardin, Ronald L (2008) Applying Load Factors to the Mean-Variance Analysis for Fuel Diversification. In: 10th International Conference on Probabilistic Methods Applied to Power Systems, 25-29th May, 2009, Rincon, PR, USA.

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Fuel diversification implies the selection of a mix of generation technologies for long-term electricity generation. The goal is to strike a good balance between reduced costs and reduced risk. The method of analysis that has been advocated and adopted for such studies is the mean-variance portfolio analysis pioneered by Markowitz (1952). However the standard meanvariance methodology, does not account for the ability of various fuels/technologies to adapt to varying loads. Such analysis often provides results that are easily dismissed by regulators and practitioners as unacceptable, since load cycles play critical roles in fuel selection. To account for such issues and still retain the convenience and elegance of the mean-variance approach, we propose a variant of the mean-variance analysis using the decomposition of the load into various types and utilizing the load factors of each load type. We also present examples using real data for the state of Indiana and demonstrate the ability of the model in providing useful insights.

Item Type: Conference or Workshop Item (Paper)
Keywords: Indiana; fuel diversification; fuel selection; long-term electricity generation; mean-variance portfolio analysis; electricity supply industry; fuel economy; power generation economics; risk management
Schools and Departments: University of Sussex Business School > SPRU - Science Policy Research Unit
Subjects: H Social Sciences > HG Finance > HG4501 Investment, capital formation, speculation > HG4900 By region or country
Q Science > QA Mathematics > QA0299 Analysis. Including analytical methods connected with physical problems
T Technology > T Technology (General) > T0055.4 Industrial engineering. Management engineering > T0057 Applied mathematics. Quantitative methods > T0057.6 Operations research. Systems analysis
T Technology > TA Engineering (General). Civil engineering (General) > TA0168 Systems engineering
T Technology > TK Electrical engineering. Electronics Nuclear engineering > TK1001 Production of electric energy or power
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Depositing User: Suriya Ruangpattana
Date Deposited: 03 Jul 2012 13:09
Last Modified: 03 Jul 2012 13:09
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