Journal of Energy Markets

Risk.net

Risk evaluation of wind turbine investments

Petros Katsoulis, Nikolaos S. Thomaidis and Jan Jantzen

  • Our electricity price models show that the wind turbine investment under investigation is expected to yield an Internal Rate of Return significantly lower than the one advertised in the sales material. This is in line with previous case studies on other wind power projects.
  • Our results suggest that the addition of GARCH models does not have a substantial impact when used in long-term predictions of logarithmic electricity prices.
  • Our risk evaluation methodology provides a flexible tool for investors who can use parametric models to forecast electricity prices and make predictions of investment performance metrics based on their full empirical distribution.

ABSTRACT

We assess the risk inherent in wind turbine investments that rely on a power market in order to determine the selling price of generated power. Using scenario analysis, we calculate various indexes that attempt to highlight different aspects of the market risk to which the energy producer is exposed. Using as a benchmark a wind turbine in Denmark that relies on Nord Pool Spot for selling its output, we experiment with four different models for the dynamics of daily electricity prices using time series analysis, which are further used to calculate scenarios for the future annual project yield. The results of our analysis highlight important aspects of the risk profile of this particular project, which could provide a basis for the development of a general methodology of risk assessment if supplemented with models measuring production uncertainty.

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