Fuzzy incorporated Black-Litterman model for renewable energy portfolio optimization

Generation mix in the power system implies the combination of various sources of energy, renewable and conventional, where each of these sources behaves as a different asset class. The generation from renewable sources is highly variable due to the uncertainty in their primary source of energy. These uncertainties affect the expected returns from a portfolio corresponding to a generation mix. To apply any theories in finance to the energy spectrum for further clarity, the risk and reward have to be clearly defined. Since taking any single parameter will not justify the complete sense of reward and risk, expected returns, defined as a fuzzy index by combining the monthly percentage output of a generation asset, the Levelized Cost of Electricity and the expected profit the generation company produces by bidding that source in power market. The generation mix is then optimized by using Black-Litterman model.