Analytical development of the efficient frontier of portfolio and electricity generation in Mexico

Abstract

The goal of this paper is to estimate the percentage structure of electricity generation by type of technology in Mexico for the period 1992-2016. Modern portfolio theory and the capital asset pricing model of Sharpe and Litner were used. Results show that using only portfolio theory is not possible to find non-negative percentages in all the technologies. When a risk-free asset is included, there is a region where all technologies have a positive participation in electricity generation. The efficient frontier is found at 20% for wind technology share and for the rest of technologies, shares are almost equally – distributed among them.