Climate policy uncertainty and power generation investments: A real options-CVaR portfolio optimization approach
MetadataShow full item record
A decision support framework has been provided to assist investors with long-term decision-making for investment choices in power generation assets under uncertain climate policy. The model combines real options analysis and modern portfolio optimization theory. A long-term correlation between carbon and renewable portfolio standard certificate prices is used to model the interaction of climate policies, with a case study being developed to investigate the optimal choice of capacity additions to an existing mix of power generation assets in Australia. The findings show that there is potential for investors to fully hedge their existing fossil fuel based generation assets through the addition of on-shore wind capacity. The model developed allows for (1) the investigation of investment risk and return under uncertain climate policies, and (2) the study of interaction among green policies.
This open access article is distributed under the Creative Commons license http://creativecommons.org/licenses/by-nc-nd/4.0/
Showing items related by title, author, creator and subject.
Pojanavatee, Sasipa (2013)Mutual funds are emerging as an opportunity for investors to automatically diversify their investments in such a way that all their money is pooled and the investment decisions are left to a professional manager. There ...
Overlapping carbon pricing and renewable support schemes under political uncertainty: Global lessons from an Australian case studyShahnazari, M.; McHugh, A.; Maybee, Bryan; Whale, J. (2017)© 2017 Elsevier LtdThe translation of a greenhouse gas (GHG) emissions reduction policy objective to the required investment in low emissions technologies may be hindered by political contest over the policy instruments ...
Evaluation of power investment decisions under uncertain carbon policy: A case study for converting coal fired steam turbine to combined cycle gas turbine plants in AustraliaShahnazari, M.; McHugh, A.; Maybee, Bryan; Whale, J. (2013)Greenhouse gas (GHG) intensive fuels are currently a major input into the Australian electricity sector. Accordingly, climate change mitigation policies represent a systematic risk to investment in electricity generation ...