| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 993742 | Energy Policy | 2010 | 8 Pages |
Abstract
This paper studies the optimal fuel-mix of a CHP producer under emission permit price risk. The producer's multi-fuel plant uses two CO2-intensive fuels and one clean fuel. Using a mean-variance framework we develop three models. The models are divided into spot-models (risk neutral and risk averse cases) and a forward-model (risk averse case). We derive the effects of price risk on optimal fuel use. An increase in price risk can in fact increase the use of CO2-intensive fuel in the spot-model. In the forward-model, the production and financial decisions are separate. We also evaluate the risk-bearing behavior of seven Finnish CHP producers. We found that risk-neutrality describes behavior better than risk-aversion.
Related Topics
Physical Sciences and Engineering
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Energy Engineering and Power Technology
Authors
Pauli Lappi, Kimmo Ollikka, Markku Ollikainen,