The cost of geothermal energy in the western US region:a portfolio-based approach a mean-variance portfolio optimization of the regions' generating mix to 2013.
- ECN-Energy Research Centre of the Netherland
- ECN-Energy Research Centre of the Netherlands
- .University of Sussex, Brighton, UK
Energy planning represents an investment-decision problem. Investors commonly evaluate such problems using portfolio theory to manage risk and maximize portfolio performance under a variety of unpredictable economic outcomes. Energy planners need to similarly abandon their reliance on traditional, ''least-cost'' stand-alone technology cost estimates and instead evaluate conventional and renewable energy sources on the basis of their portfolio cost--their cost contribution relative to their risk contribution to a mix of generating assets. This report describes essential portfolio-theory ideas and discusses their application in the Western US region. The memo illustrates how electricity-generating mixes can benefit from additional shares of geothermal and other renewables. Compared to fossil-dominated mixes, efficient portfolios reduce generating cost while including greater renewables shares in the mix. This enhances energy security. Though counter-intuitive, the idea that adding more costly geothermal can actually reduce portfolio-generating cost is consistent with basic finance theory. An important implication is that in dynamic and uncertain environments, the relative value of generating technologies must be determined not by evaluating alternative resources, but by evaluating alternative resource portfolios. The optimal results for the Western US Region indicate that compared to the EIA target mixes, there exist generating mixes with larger geothermal shares at equal-or-lower expected cost and risk.
- Research Organization:
- Sandia National Laboratories
- Sponsoring Organization:
- USDOE
- DOE Contract Number:
- AC04-94AL85000
- OSTI ID:
- 876243
- Report Number(s):
- SAND2005-5173
- Country of Publication:
- United States
- Language:
- English
Similar Records
State Policies Provide Critical Support for Renewable Electricity
Balancing Cost and Risk: The Treatment of Renewable Energy inWestern Utility Resource Plans