Portfolio optimization of China's generation technology based on conditional value-at-risk (CVaR) in plant level

With unstable fuel price and unclear climate policy, investment of China's generation technology has faced with high risk, as well a tough question about how to select the optimal generation technology portfolio. Considered the role of carbon capture and storage (CCS) played in future CO2 mitigation, pulverized coal (PC), integrated gasification combined cycle (IGCC), PC+CCS, IGCC+CCS and wind power are chosen as five representative technologies. In particular, we apply condition value-at-risk (CVaR) theory to optimize China's generation technology portfolio in plant level. The results show that compared with classic mean-variance model, CVaR has better performance in risk measurement and risk diversification. If CCS is combined with enhanced oil recovery (EOR), PC+CCS and IGCC+CCS will play an important part in China's generation technology portfolio, because of their good performance in profit and CO2 reduction. PC+CCS with highest coal consumption is largely impacted by the coal price, compared with PC and IGCC+CCS. As a zero emission technology, wind power also plays an important role when climate policy becomes stringent. In contrast, PC plays an important role in loose climate policy scenario, especially for risk aversion investors.