Investment in the energy sector: An optimization model that contemplates several uncertain parameters

Abstract

Investments in the energy sector on the medium/long term are risky due to the uncertainties having in this sector: price volatility, unclear demands and indeterminate fossil reserve volumes, among others. Decision making tools plays an important role in order to attenuate the effect of uncertainties in the investment by including this aspect in the models. In this sense, mathematical programming models provide analytical tools to improve the decision making process. This paper presents a multi-period mathematical model for planning investments in the energy sector in a medium time horizon. The model considers several imprecise information of the energy market: uncertainty in the price of fossil resources, the trend in the growing demand and the variation in the availability of fossil reserves. The main objective of this work is to formulate a decision making model in planning investments in the energy sector which can provide a unique strategic plan, robust enough to cover pessimistic and optimistic scenarios of the uncertainties. In particular, a fuzzy approach is used to formulate the problem, and is combined with sets of possibilistic techniques to transform the problem into a form that can be solved. In order to show the capabilities of the model, it is applied and solved for the Argentina's energy sector.