Evaluating Investments in Renewable Energy Projects under Policy Risks
Journal
Energy Policy
ISSN
0301-4215
Type
journal article
Date Issued
2016
Author(s)
Abstract
The considerable amount of required infrastructure and renewable energy investments expected in the forthcoming years also implies an increasingly relevant contribution of private and institutional in-
vestors. In this context, especially regulatory and policy risks have been shown to play a major role for
investors when evaluating investments in renewable energy and should thus also be taken into account in risk assessment and when deriving risk-return profiles. In this paper, we provide a stochastic model
framework to quantify policy risks associated with renewable energy investments (e.g. are retospective
reduction of a feed-in tariff), there by also taking into account energy price risk, resource risk, and inflation risk. The model is illustrated by means of simulations and scenario analyses, and it makes use of
expert estimates and fuzzy set theory for quantifying policy risks. Our numerical results for a portfolio of on shore wind farms in Germany and France show that policy risk can strongly impact risk-return profiles, and that cross-country diversification effects can considerably decrease the overall risk for investors.
vestors. In this context, especially regulatory and policy risks have been shown to play a major role for
investors when evaluating investments in renewable energy and should thus also be taken into account in risk assessment and when deriving risk-return profiles. In this paper, we provide a stochastic model
framework to quantify policy risks associated with renewable energy investments (e.g. are retospective
reduction of a feed-in tariff), there by also taking into account energy price risk, resource risk, and inflation risk. The model is illustrated by means of simulations and scenario analyses, and it makes use of
expert estimates and fuzzy set theory for quantifying policy risks. Our numerical results for a portfolio of on shore wind farms in Germany and France show that policy risk can strongly impact risk-return profiles, and that cross-country diversification effects can considerably decrease the overall risk for investors.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
None
Refereed
Yes
Publisher
Elsevier
Volume
95
Number
1
Start page
238
End page
252
Pages
15
Subject(s)
Division(s)
Eprints ID
255497