Value-Cost Appraisal of Wind Energy Applying Portfolio Analysis

• Main Author: Moran, Oliver
• Format: Others
• Language: English
• Published: Högskolan på Gotland, Institutionen för kultur, energi och miljö 2012
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:hgo:diva-1864

To meet electricity demand, electric utilities develop portfolio strategies for generation, transmission, and distributions systems. Portfolio strategies combine different assets in a portfolio (getting the average returns from the assets) but the risk or in other words the variability of these returns is expected to cancel each other out, since one asset is likely to be up when another is down. Throughout this analysis the energy consumption for the last 40 years is examined from a Levelised Generation Cost (LGC) and portfolio diversity aspect using certain parameters. When monitoring the gas field productions in UK waters the decline in production from the start of the decade can be noticed. Questions have been asked including what will the UK government invest in next? People are often told if they want to receive higher returns from their investment, they should increase the proportion of stocks in their portfolio or change the mix and invest in more aggressive asset/stock combinations. So can the United Kingdom rely on more imports from a perilously volatile market? When the situation is analysed closely and past events are scrutinised, such as when Russia stopped all gas supplies across the Ukraine (which carried about a fifth of the EU's gas needs) and more presently the conflicts in the Middle East which have affected oil prices, the answer is simple. The United Kingdom investing in more imports is akin to telling people to drive 100 miles per hour if they want to get somewhere sooner. While it's possible that they will arrive faster, it also dramatically increases the likelihood that they won't arrive at all. So where does this leave the future of energy consumption in the British Isles? To counteract this problem the government has looked towards wind power, with focus on offshore wind and in June 2011 they announced the largest nuclear programme for a generation with eight new sites having been proposed. The UK however has gained financially from the northern gas fields with calculated CCGTs LCG of £30.31 MWh provideding affordable electricity for its customers during the last decade (Department of Trade and Industry, 2000). With the gas production declining however a move to nuclear with£175.95 LCG seems costly. Onshore wind £28.62 MWh expected return with £40 MWh income generation used and £34.82 Renewables Obligation Certificates (ROCs) shows why developers are constructing wind farms through out the British Isles. The Modern Portfolio Theory (MPT) analysis has also shown the overall economical diversity of fuels since 1970 has improved.