Evaluation of Investments in Wind Energy Projects, under Uncertainty. State of the Art Review

Abstract

The use of renewable energy sources, especially wind energy, has been widely developed, mostly during the last decade. The main objective of the present study is to conduct a literature review focused on the evaluation under uncertainty of wind energy investment using the real options approach to find out whether public opposition (NIMBY projects) has been contemplated, and if so, what have been the flexible strategies applied for its intervention. Overall, 97 publications were analyzed, identifying 20 different models or approaches, which were grouped into eight categories: 1. Real options, 2. Optimization, 3. Stochastics, 4. Financial evaluation, 5. Probabilistic, 6. Estimation, 7. Numerical prediction, and 8. Others. The real options approach, present in 32% of the studies, was the most popular. Twenty-eight types of uncertainties were identified, which were grouped, for better analysis, into nine categories. In total, 62.5% of the studies included the price of electricity as a source of uncertainty; 18.8%, the velocity of wind; and 15.6%, the feed-in rates-subsidy. Both random and non-random techniques were applied to assess the real options and to model the uncertainties. When evaluating real options, the Monte Carlo simulation technique was the most preferred, with 16 (51.6%) applications, followed by non-randomized techniques, decision tree, and dynamic programming, with eight (25.8%) applications each. There is a marked tendency to use stochastic processes to model uncertainty, particularly geometric Brownian motion, which was used in 61.3% (19) of the studies in the sample. When searching for “real options AND (nimby OR public opposition)”, no study was found, which shows the possibility of developing research on this aspect to determine its impact on investments in wind energy projects.

Renewable Energy Systems 2023

“…For this reason, it is necessary to focus our research efforts on the developments in wind energy projects. It is in this framework that the work of the Murgas et al [20] was developed. In particular, this work is a literature review which evaluates the models and approaches used in the evaluation of investments in wind systems under uncertainty.…”

Economic and Regulatory Uncertainty in Renewable Energy System Design: A Review

“…Lastly, a review by Murgas et al [10] evaluates the state-of-the-art in wind energy investment between 2006 and 2020. The authors employed a different classification of the models but identified that the ROA approach was the most popular and that electricity price was the most acknowledged uncertain parameter.…”

“…However, to the authors' best knowledge, no works systematically define and classify E&R uncertainties relevant to RE projects. In addition, as Table 1 shows, the highlighted reviews about uncertainty modeling focus on a single RE technology [10] or problem formulation [5,7,8], do not include E&R parameters [6], or do not detail solution algorithms or methods [9,10]. This review attempts to cover this gap in the following way:…”

Real Options and their application in renewable energy projects. State-of-the-art review

“…El uso de las opciones reales tiene relevancia para la evaluación de inversiones en la generación de energía, a partir de la desregulación del sistema de energía y la presencia de mercados de electricidad competitivos, lo que ocasiona una gran incertidumbre, además, de los altos costos iniciales de las inversiones en estas tecnologías y la irreversibilidad de las mismas (Kitzing et al, 2016;Henao et al, 2018;Gazheli y Bergh, 2018;Murgas et al, 2021).…”

“…En las treinta publicaciones analizadas, con enfoque de opciones reales, se identificaron 29 tipos de incertidumbres, las cuales se categorizaron en ocho grupos: 1) Generación de energía, 2) Medio ambiente, 3) Precios, 4) Costos, 5) Políticas reguladoras, 6) Mercado, 7) Condiciones del viento y 8) Progreso tecnológico, como se muestra en la Tabla 3. Murgas et al (2021) 1. La generación de energía incluye las incertidumbres que afectan el proceso de producción de energía, como el rendimiento del electrolizador y el rendimiento energético.…”