Optimal Investment Strategy for Thermal Generation Companies Based on Portfolio Theory under RPS

Under the obligations imposed by the Renewable Portfolio Standard (RPS) on the generation side, power companies are facing both challenges and opportunities concerning investment decision-making problems. To begin with, three strategies that thermal generation companies can adopt to meet the quota obligations are considered in this paper: investing in newly built wind farms, purchasing Renewable Energy Certificate (REC) and paying fines for unfulfilled quota obligations, with the equivalent expected return and risk of each strategy analyzed immediately afterwards. Next, based on the portfolio theory, the Portfolio Decision Model of thermal generation companies is put forward and the optimal mixed strategy of the companies is determined. Finally, the operation data of actual electricity market and REC market are served for demonstrating the proposed model. Moreover, sensitivity of distinct variables including risk preference of power companies and quota policy of the government on the results of the optimal mixed strategy are analyzed. The results of case studies show that thermal generation companies can obtain the maximum investment decision-making utility by adopting specific mixed strategies according to different risk preferences and different stages of RPS implementation. Also, the government should increase the unit penalty with the increase of RPS quota ratio.