Analysis and Application of Modern Portfolio Theory to the German Electricity Mix

Analysis and Application of Modern Portfolio Theory to the German Electricity Mix

Fecha: diciembre 2021

Javier Eduardo Afonso Arévalo, Fernando de Llano Paz, Guillermo Iglesias Gómez

German electricity mix, Markowitz optimization portfolio model, German energy transition, Modern portfolio theory, Renewable energy sources

Papeles de Energía, N.º 15 (2021)

This study contextualizes the current characteristics of the German electricity mix, what energy sources it uses and how much they are used in order to generate power, or what is the price that the final consumer pays for its electrical needs compared to other neighboring nations, among other relevant aspects. In the second and main part of the paper, in order to predict what will be the evolution of the aforementioned sector, something relevant due to Germany´s front runner position in the current energy transition towards a cleaner and sustainable energy, that will potentially help us to understand the evolution of the majority of the advanced economies. The methodology that will be used is the modern portfolio theory, and applying the appropriate restrictions, a forecast of the electricity mix composition for the years 2030, 2040 and 2050 and the implications that it has in terms of power prices, pollution and health will be made. By 2030, 65% of the electricity produced in the country will be generated by RES and Biofuels, by 2040, 65%- 82%, and by 2050 this proportion will reach 80%-90%. Also, conventional energy sources are expected to be less important as time passes. In contrast, all green energy sources will be improved drastically, being way more competitive in terms of production costs than fossil fuel sources. Indeed, onshore wind will become the single largest energy source, generating 31%-65% of power in the country, followed by solar (13%-28%).

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