Pathways to specialized renewable energy generation: insights from integer portfolio optimization in a globalized electricity market.

Abstract

Research on portfolio optimization for energy generation often does so from a financial perspective. This study addressed a unique challenge, determining which companies, amidst a globalized electricity market, should be retained for climate risk preservation during specialization. Utilizing weather and generation data from 106 power plants across Argentina, we adapted integer portfolio optimization tools. Originally designed for financial index funds, these tools helped us construct a portfolio of power plants for a resilient energy mix. Our findings revealed optimal companies for retention by analyzing different portfolio configurations, where the number of plants was adjusted iteratively. In each iteration of the model, we selected a set of representative plants that minimize climate risk, which sometimes resulted in a plant being included in one portfolio but not another. This approach identified the specific companies and technologies essential for a diversified and climate-resilient energy portfolio while ensuring a strategic transition toward specialization and stabilizing generation risk in the face of variable weather conditions. This paper presents a groundbreaking solution for specialization in a globalized energy market. Through portfolio optimization, we identified pivotal companies for each stage of the transition in Argentina. Firms like Parque Eólico La Genoveva and Complejo Hidroeléctrico Centrales Cacheuta Alvarez Condarco, showcased the balance needed for wind and hydroelectric sources. These insights should be used to guide policymakers to ensure a controlled and effective transition while maintaining stable generation risk.

Orlando Joaqui Barandica

PhD Industrial Engineering

My research interests include energy markets, business analytics, quantitative finance, applied econometrics and statistical, and data visualization.