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Profitability of wind energy: Short-term risk factors and possible improvements

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  • Montes, Germán Martínez
  • Martín, Enrique Prados

Abstract

The wind energy industry has grown considerably in recent years. If the current rate of growth of installed capacity of 1500Â MW per year continues, by 2006 Spain will achieve the objective established for 2010 in the "Plan de Fomento" [Plan to Promote Renewable Energies] or for 2008 in the more ambitious "Plan de Infraestructuras Eléctricas y Gasísticas" [Plan for Electrical and Gas Installations]. Achieving these important goals, which require significant investment, depends upon the continued stability of salaries and the willingness of banks to provide financing. Therefore, we studied those factors that had the greatest short-term impact on the economic viability of wind energy projects in Spain and we found that the inherent risk within the sector can become a real obstacle in terms of development and short-term financing. Given the possibility of carrying out financial analysis that is more exhaustive than traditionally employed methods, the various models for evaluating investment in risk conditions were studied with the aim of choosing the ideal tool that takes account of the highly fortuitous nature of wind velocity.

Suggested Citation

  • Montes, Germán Martínez & Martín, Enrique Prados, 2007. "Profitability of wind energy: Short-term risk factors and possible improvements," Renewable and Sustainable Energy Reviews, Elsevier, vol. 11(9), pages 2191-2200, December.
    • Handle: RePEc:eee:rensus:v:11:y:2007:i:9:p:2191-2200
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    1. Frederick S. Hillier, 1963. "The Derivation of Probabilistic Information for the Evaluation of Risky Investments," Management Science, INFORMS, vol. 9(3), pages 443-457, April.
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    1. Girard, R. & Laquaine, K. & Kariniotakis, G., 2013. "Assessment of wind power predictability as a decision factor in the investment phase of wind farms," Applied Energy, Elsevier, vol. 101(C), pages 609-617.
    2. Jin, Xin & Zhang, Zhaolong & Shi, Xiaoqiang & Ju, Wenbin, 2014. "A review on wind power industry and corresponding insurance market in China: Current status and challenges," Renewable and Sustainable Energy Reviews, Elsevier, vol. 38(C), pages 1069-1082.
    3. Farrell, Niall & Donoghue, Cathal O’ & Morrissey, Karyn, 2015. "Quantifying the uncertainty of wave energy conversion device cost for policy appraisal: An Irish case study," Energy Policy, Elsevier, vol. 78(C), pages 62-77.
    4. Jorge Arnaldo Troche-Escobar & Herman Augusto Lepikson & Francisco Gaudêncio Mendonça Freires, 2018. "A Study of Supply Chain Risk in the Brazilian Wind Power Projects by Interpretive Structural Modeling and MICMAC Analysis," Sustainability, MDPI, vol. 10(10), pages 1-24, September.
    5. Jaroslava Janekova & Jana Fabianova & Andrea Rosova, 2016. "Environmental And Economic Aspects In Decision Making Of The Investment Project “Wind Park”," Polish Journal of Management Studies, Czestochowa Technical University, Department of Management, vol. 13(1), pages 90-100, June.
    6. Caralis, George & Diakoulaki, Danae & Yang, Peijin & Gao, Zhiqiu & Zervos, Arthouros & Rados, Kostas, 2014. "Profitability of wind energy investments in China using a Monte Carlo approach for the treatment of uncertainties," Renewable and Sustainable Energy Reviews, Elsevier, vol. 40(C), pages 224-236.
    7. Hong, Lixuan & Möller, Bernd, 2012. "An economic assessment of tropical cyclone risk on offshore wind farms," Renewable Energy, Elsevier, vol. 44(C), pages 180-192.
    8. Kwon, Soon-Duck, 2010. "Uncertainty analysis of wind energy potential assessment," Applied Energy, Elsevier, vol. 87(3), pages 856-865, March.
    9. Gatzert, Nadine & Kosub, Thomas, 2016. "Risks and risk management of renewable energy projects: The case of onshore and offshore wind parks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 60(C), pages 982-998.
    10. Gass, V. & Strauss, F. & Schmidt, J. & Schmid, E., 2011. "Assessing the effect of wind power uncertainty on profitability," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(6), pages 2677-2683, August.
    11. Kongnam, C. & Nuchprayoon, S. & Premrudeepreechacharn, S. & Uatrongjit, S., 2009. "Decision analysis on generation capacity of a wind park," Renewable and Sustainable Energy Reviews, Elsevier, vol. 13(8), pages 2126-2133, October.
    12. Kongnam, C. & Nuchprayoon, S., 2010. "A particle swarm optimization for wind energy control problem," Renewable Energy, Elsevier, vol. 35(11), pages 2431-2438.

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