This paper studies flexible multi-facility capacity expansion with risk aversion. In this setting, the decision maker can periodically expand the capacity of facilities given observations of uncertain demand. We model this situation as a multi-stage stochastic programming problem. We express risk aversion in this problem through conditional value-at-risk (CVaR), and we formulate a mean-CVaR objective. To solve the multi-stage problem, we optimize over decision rules. In particular, we approximate the full policy space of the problem with a tractable family of if-then policies. Subsequently, a decomposition algorithm is proposed to optimize the decision rule. This algorithm decomposes the model over scenarios and it updates solutions via the subgradients of the recourse function. We demonstrate that this algorithm can quickly converge to high-performance policies. To illustrate the practical effectiveness of this method, a case study on the waste-to-energy system in Singapore is presented. These simulation results show that by adjusting the weight factor of the objective function, decision makers are able to trade off between a risk-averse policy that has a higher expected cost but a lower value-at-risk, and a risk-neutral policy that has a lower expected cost but a higher value-at-risk risk.
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