Vol.:(0123456789) 1 3 Journal of Electrical Engineering & Technology https://doi.org/10.1007/s42835-019-00318-3 ORIGINAL ARTICLE An Optimal Asset Allocation Strategy for Suppliers Paying Carbon Tax in the Competitive Electricity Market Waqas Ahmad Wattoo 1  · Ghulam Sarwar Kaloi 2  · Muhammad Yousif 3  · Mazhar Hussain Baloch 4  · Baqar Ali Zardari 5  · Jehangir Arshad 1  · Ghulam Farid 1  · Talha Younas 1  · Sohaib Tahir 1 Received: 31 October 2018 / Revised: 29 July 2019 / Accepted: 11 September 2019 © The Korean Institute of Electrical Engineers 2019 Abstract The escalating energy demand across the globe has intensifed the electricity production. Owing to the unavailability of the reliable techniques for electricity storage for a long duration, it is consumed immediately after its production. Therefore, electricity markets can’t be handled like the conventional stock markets. Power companies are facing immense price and delivery risks owing to the increasing competition in the electricity markets. As a result, risk management is the fundamental concern to be addressed in order to achieve the optimum proft targets. Consequently, the power generation organizations need to allocate their generation in bilateral contracts and spot market. For this purpose, an optimal theory of portfolio selec- tion is proposed in this study for electricity generation by forming a reliable prototype and applying the proposed scheme to obtain the suitable outcomes. The Paris Accord on environmental safety from carbon dioxide and NOx gases is especially considered during the modeling of the proposed technique. The credibility of the proposed scheme is validated by using the real-time market data from the PJM market. Various risk-return tradeofs are implemented, and their corresponding solutions are acquired for portfolio optimization as corroborated by the results. The suggested technique is found reliable and adequate for the carbon tax paying suppliers around the world for allocating their respective generation based on the demand of the consumers. Keywords Asset allocation · Carbon tax · Portfolio optimization · Power market · Risk management 1 Introduction Greenhouse gases (GHG) have afected the climate and sev- eral researchers have contributed in addressing this issue. However, instead of many researches, mankind remained unable to fnd the appropriate solution of these problems. However, researchers are considering GHG as hot topic for research across the globe over since 2010 [1–4]. United Nations Framework Convention on Climate Change (UNF- CCC) is the frst treaty to target the reduction of carbon emissions since 1994. Nevertheless, after 1994 UNFCCC, * Waqas Ahmad Wattoo waqas@cuisahiwal.edu.pk Ghulam Sarwar Kaloi kaloi.59@gmail.com Muhammad Yousif yousifqbal@yahoo.com Mazhar Hussain Baloch mazharhussain@muetkhp.edu.pk Baqar Ali Zardari bazardari@quest.edu.pk 1 Department of Electrical and Computer Engineering, COMSATS University Islamabad, Sahiwal Campus, Sahiwal, Pakistan 2 Department of Electrical Engineering, Quaid-e-Awam University of Engineering, Science and Technology, Larkana Campus, Larkana, Pakistan 3 US-Pakistan Center for Advanced Studies in Energy, National University of Sciences and Technology (NUST), Islamabad 44000, Pakistan 4 Department of Electrical Engineering, Mehran University of Engineering and Technology, Khairpur Campus, Sindh, Pakistan 5 Department of Information Technology, Quaid-e-Awam University of Engineering, Science and Technology, Nawabshah, Pakistan