infonet-economy

In this contribution, portfolio theory is applied to power technologies of the United States and Switzerland. A current user view is adopted to determine the efficient frontier of generation technologies in terms of expected return and risk. Since shocks in generation costs per kWh (the inverse of expected returns) are correlated, seemingly unrelated regression estimation (SURE) is applied to filter out the systematic components of the covariance matrix. Since some of the portfolios of particular interest (minimum variance, maximum expected return) call for a high share of one technology, security of supply becomes an issue. Shannon-Wiener and Herfindahl-Hirschman indices
are calculated to see the trade-off between efficiency and security of supply. Results suggest that riskaverse
utilities (and ultimately, consumers) in the United States would have gained from adopting a feasible portfolio containing more coal, gas and oil at a price of a somewhat reduced security of supply. In the case of Switzerland, the realistic portfolio consists of nuclear, storage hydro, run of river and solar, with shares identical to those of the actual portfolio in 2003. Therefore, the current mix of
Swiss generating technologies in Switzerland may be deemed efficient.