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A valuation of wind power projects in Germany using real regulatory options

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  • Barroso, Manuel Monjas
  • Iniesta, José Balibrea

Abstract

This study evaluates a proposed investment in wind power generation using real options from the regulatory framework applicable to the German market (Europe's largest producer of renewable energy). For this evaluation, we have modelled the primary uncertainties affecting the project and we have incorporated the uncertainties arising from public support for renewable energy. These mechanisms generate RROs (real regulatory options) – not in the hands of the project's promoter – that affect the net present value of the project. The inclusion of these mechanisms enriches and improves the valuation methodology of such projects. The comparative analysis of the case study, using other countries, reinforces the idea that the existing RROs depreciate the net present value of renewable generation projects. We believe that the methodology we propose in our paper can help policy makers to improve their policies to promote renewable energy.

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  • Barroso, Manuel Monjas & Iniesta, José Balibrea, 2014. "A valuation of wind power projects in Germany using real regulatory options," Energy, Elsevier, vol. 77(C), pages 422-433.
    • Handle: RePEc:eee:energy:v:77:y:2014:i:c:p:422-433
    DOI: 10.1016/j.energy.2014.09.027
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    2. Tvedt, Jostein, 2022. "Floating offshore wind and the real options to relocate," Energy Economics, Elsevier, vol. 116(C).
    3. Boomsma, Trine Krogh & Linnerud, Kristin, 2015. "Market and policy risk under different renewable electricity support schemes," Energy, Elsevier, vol. 89(C), pages 435-448.
    4. Xian, Hui & Karali, Berna & Colson, Gregory & Wetzstein, Michael E., 2015. "Diesel or compressed natural gas? A real options evaluation of the U.S. natural gas boom on fuel choice for trucking fleets," Energy, Elsevier, vol. 90(P2), pages 1342-1348.
    5. Assereto, Martina & Byrne, Julie, 2021. "No real option for solar in Ireland: A real option valuation of utility scale solar investment in Ireland," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    6. Loncar, Dragan & Milovanovic, Ivan & Rakic, Biljana & Radjenovic, Tamara, 2017. "Compound real options valuation of renewable energy projects: The case of a wind farm in Serbia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 354-367.
    7. Cuadra, L. & Ocampo-Estrella, I. & Alexandre, E. & Salcedo-Sanz, S., 2019. "A study on the impact of easements in the deployment of wind farms near airport facilities," Renewable Energy, Elsevier, vol. 135(C), pages 566-588.
    8. Gazheli, Ardjan & van den Bergh, Jeroen, 2018. "Real options analysis of investment in solar vs. wind energy: Diversification strategies under uncertain prices and costs," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 2693-2704.
    9. Hake, Jürgen-Friedrich & Fischer, Wolfgang & Venghaus, Sandra & Weckenbrock, Christoph, 2015. "The German Energiewende – History and status quo," Energy, Elsevier, vol. 92(P3), pages 532-546.
    10. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    11. Martín-Barrera, Gonzalo & Zamora-Ramírez, Constancio & González-González, José M., 2016. "Application of real options valuation for analysing the impact of public R&D financing on renewable energy projects: A company′s perspective," Renewable and Sustainable Energy Reviews, Elsevier, vol. 63(C), pages 292-301.
    12. Fathabadi, Hassan, 2016. "Maximum mechanical power extraction from wind turbines using novel proposed high accuracy single-sensor-based maximum power point tracking technique," Energy, Elsevier, vol. 113(C), pages 1219-1230.
    13. Fischer, W. & Hake, J.-Fr. & Kuckshinrichs, W. & Schröder, T. & Venghaus, S., 2016. "German energy policy and the way to sustainability: Five controversial issues in the debate on the “Energiewende”," Energy, Elsevier, vol. 115(P3), pages 1580-1591.

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    More about this item

    Keywords

    Real regulatory options; Renewable energy; Project valuation;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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