【Speaker】：Prof. Nikolay Khabarov (International Institute for Applied System Analysis)

【Title】：Risk-Optimal Technological Portfolios in Energy Production

【Time】：10:00am, Apr 22, 2026.

【Location】：Beijing Lab for System Engineering of Carbon Neutrality

【About Report】：The objective of this presentation is to combine a real options framework with portfolio optimization techniques and to apply this framework to investments in the electricity sector. In particular, a real options model is used to assess the adoption decision of specific technologies under uncertainty. These technologies are coal-fired power plants, biomass-fired power plants and onshore windmills, and they are representative of technologies based on fossil fuels, biomass and renewables, respectively. There is an optional carbon capture and storage module, which can be used as a power plant upgrade and, when installed, has to be managed optimally to adjust operations to dynamic CO2 and electricity pricing. We graphically describe the dynamics of the system by a state diagram and provide a formal mathematical description. The stochastic return distributions resulting from this analysis are used as an input to a portfolio optimization model, where the measure of risk that we employ and discuss is conditional value-at-risk (CVaR). We further present computationally efficient formulation of the CVaR-portfolio optimization as a linear programming problem (profit maximization under risk constraint and risk minimization for required profit level). Finally, we analyze the dependence of optimal portfolio composition on risk preferences and risk-return constraints under different CO2 price development scenarios.