Valuation of Wind Energy Projects: A Real Options Approach
We address the valuation of an operating wind farm and the finite-lived option to invest in it under different reward/support schemes: a constant feed-in tariff, a premium on top of the electricity market price (either a fixed premium or a variable subsidy such as a renewable obligation certificate...
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| Format: | Article |
| Language: | English |
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MDPI AG
2014-05-01
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| Series: | Energies |
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| Online Access: | http://www.mdpi.com/1996-1073/7/5/3218 |
| _version_ | 1817989830724812800 |
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| author | Luis M. Abadie José M. Chamorro |
| author_facet | Luis M. Abadie José M. Chamorro |
| author_sort | Luis M. Abadie |
| collection | DOAJ |
| description | We address the valuation of an operating wind farm and the finite-lived option to invest in it under different reward/support schemes: a constant feed-in tariff, a premium on top of the electricity market price (either a fixed premium or a variable subsidy such as a renewable obligation certificate or ROC), and a transitory subsidy, among others. Futures contracts on electricity with ever longer maturities enable market-based valuations to be undertaken. The model considers up to three sources of uncertainty: the electricity price, the level of wind generation, and the certificate (ROC) price where appropriate. When analytical solutions are lacking, we resort to a trinomial lattice combined with Monte Carlo simulation; we also use a two-dimensional binomial lattice when uncertainty in the ROC price is considered. Our data set refers to the UK. The numerical results show the impact of several factors involved in the decision to invest: the subsidy per MWh generated, the initial lump-sum subsidy, the maturity of the investment option, and electricity price volatility. Different combinations of variables can help bring forward investments in wind generation. One-off policies, e.g., a transitory initial subsidy, seem to have a stronger effect than a fixed premium per MWh produced. |
| first_indexed | 2024-04-14T00:51:16Z |
| format | Article |
| id | doaj.art-ebfcd9dfc95947cba6635f5101c2eaba |
| institution | Directory Open Access Journal |
| issn | 1996-1073 |
| language | English |
| last_indexed | 2024-04-14T00:51:16Z |
| publishDate | 2014-05-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Energies |
| spelling | doaj.art-ebfcd9dfc95947cba6635f5101c2eaba2022-12-22T02:21:47ZengMDPI AGEnergies1996-10732014-05-01753218325510.3390/en7053218en7053218Valuation of Wind Energy Projects: A Real Options ApproachLuis M. Abadie0José M. Chamorro1Basque Centre for Climate Change (BC3), Alameda Urquijo 4-4º, 48008 Bilbao, SpainDepartment of Financial Economics II, University of the Basque Country UPV/EHU, Avenida Lehendakari Aguirre 83, 48015 Bilbao, SpainWe address the valuation of an operating wind farm and the finite-lived option to invest in it under different reward/support schemes: a constant feed-in tariff, a premium on top of the electricity market price (either a fixed premium or a variable subsidy such as a renewable obligation certificate or ROC), and a transitory subsidy, among others. Futures contracts on electricity with ever longer maturities enable market-based valuations to be undertaken. The model considers up to three sources of uncertainty: the electricity price, the level of wind generation, and the certificate (ROC) price where appropriate. When analytical solutions are lacking, we resort to a trinomial lattice combined with Monte Carlo simulation; we also use a two-dimensional binomial lattice when uncertainty in the ROC price is considered. Our data set refers to the UK. The numerical results show the impact of several factors involved in the decision to invest: the subsidy per MWh generated, the initial lump-sum subsidy, the maturity of the investment option, and electricity price volatility. Different combinations of variables can help bring forward investments in wind generation. One-off policies, e.g., a transitory initial subsidy, seem to have a stronger effect than a fixed premium per MWh produced.http://www.mdpi.com/1996-1073/7/5/3218wind farmsuncertaintyelectricityload factorfutures marketsreal options |
| spellingShingle | Luis M. Abadie José M. Chamorro Valuation of Wind Energy Projects: A Real Options Approach Energies wind farms uncertainty electricity load factor futures markets real options |
| title | Valuation of Wind Energy Projects: A Real Options Approach |
| title_full | Valuation of Wind Energy Projects: A Real Options Approach |
| title_fullStr | Valuation of Wind Energy Projects: A Real Options Approach |
| title_full_unstemmed | Valuation of Wind Energy Projects: A Real Options Approach |
| title_short | Valuation of Wind Energy Projects: A Real Options Approach |
| title_sort | valuation of wind energy projects a real options approach |
| topic | wind farms uncertainty electricity load factor futures markets real options |
| url | http://www.mdpi.com/1996-1073/7/5/3218 |
| work_keys_str_mv | AT luismabadie valuationofwindenergyprojectsarealoptionsapproach AT josemchamorro valuationofwindenergyprojectsarealoptionsapproach |