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Economic Risk of Wind Farm Investments in UAE: Evaluation through Real Options Approach

Author

Listed:
  • Gyanendra Singh Sisodia

    (College of Business Administration, Ajman University, United Arab Emirates,)

  • Wafa Mohammed Ebrahim Al Mazrouei

    (College of Business Administration, Ajman University, United Arab Emirates,)

  • Rajesh Mohnot

    (College of Business Administration, Ajman University, United Arab Emirates,)

  • Aqila Rafiuddin

    (Tecnologico de Monterrey, Mexico)

Abstract

This study examines the potential of business investments in wind offshore farm in the United Arab Emirates through projection of five different possible scenarios. The evaluation was done by using real option approach and Monte Carlo simulation imbibing the potential risk on investment with the source of funds used. Our analysis indicates that the return on investments and the risk on delay option remain at the highest degree if the project is financed with 50% government support and 50% investor’s own equity. On the contrary, a 100% bank-financed project yields lowest investments return and lowest risk option to delay. This implies that the financial leverage and the high bank interest rate are significant factors in influencing the economic risk and return of the wind farm project. This research contributes to the existing literature by highlighting the significance of real options application in the most-sought energy sector – wind farm. Moreover, this will pave way for small and medium enterprises (SMEs) in the UAE to invest in this energy field.

Suggested Citation

  • Gyanendra Singh Sisodia & Wafa Mohammed Ebrahim Al Mazrouei & Rajesh Mohnot & Aqila Rafiuddin, 2023. "Economic Risk of Wind Farm Investments in UAE: Evaluation through Real Options Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 13(5), pages 658-666, September.
    • Handle: RePEc:eco:journ2:2023-05-69
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    References listed on IDEAS

    as
    1. Aliashim Albani & Mohd Zamri Ibrahim & Che Mohd Imran Che Taib & Abd Aziz Azlina, 2017. "The Optimal Generation Cost-Based Tariff Rates for Onshore Wind Energy in Malaysia," Energies, MDPI, vol. 10(8), pages 1-16, July.
    2. Agaton, Casper Boongaling & Guno, Charmaine Samala & Villanueva, Resy Ordona & Villanueva, Riza Ordona, 2020. "Economic analysis of waste-to-energy investment in the Philippines: A real options approach," Applied Energy, Elsevier, vol. 275(C).
    3. Valliyil Mohammed Aboobacker & Puthuveetil Razak Shanas & Subramanian Veerasingam & Ebrahim M. A. S. Al-Ansari & Fadhil N. Sadooni & Ponnumony Vethamony, 2021. "Long-Term Assessment of Onshore and Offshore Wind Energy Potentials of Qatar," Energies, MDPI, vol. 14(4), pages 1-21, February.
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    More about this item

    Keywords

    Renewable Energy; Wind Farm Investments; Real Options; Economic Risk;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General

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