Integrated risk management for renewable energy investment over life cycle

Abstract

The provision of a financial product for renewable energy requires that the return of the financial product be determined based on the portion of risk it holds. Accurately modeling the risk becomes essential in order to achieve higher penetration of renewable energy in markets. This paper combines the effect of the various types of risks, and shows that the overall risk of renewable energy is not the sum of the individual risks due to each driving factor. The applications of the proposed model are illustrated by two cases: the impact in energy markets and the distribution of profit to different types of risk. Energy efficiency, electricity prices and wind speed, which are associated with potential risks, are modeled as inputs.