Comparison of power plant portfolios under the no energy mix target and national energy mix target using the mean–variance model

Abstract

Electricity generation costs become the primary consideration in a country’s energy planning; however, minimizing costs cannot be afforded if energy security is not ensured. Furthermore, considering generation technology cost and risk separately from the generation technology portfolio is no longer relevant This study aims to scrutinize Indonesia’s efficient generation mix by comparing the costs and risks of portfolios located on the efficient frontiers and diversification levels under the no energy mix target and the Indonesia Energy Policy 2025 target using the mean–variance model. The study involved eleven types of generation technology used in Indonesia. The results show that the portfolios under the national energy mix target have lower risks and costs than the existing energy generation portfolio. However, portfolios under the national energy mix target still have higher risks and costs than portfolios without an energy mix target. Interestingly, renewable energy generation technologies dominate the portfolios. This result implies that increasing the proportion of renewable energy into the national energy portfolio should be prioritized in the energy policy. The biggest problem of renewable energy generation technologies is associated with capacity. Hence, the Government should pay attention to the generation development intensively so that every investment can achieve the economics of scale.