Valuation of Wind Energy Turbines Using Volatility of Wind and Price

Abstract

The limitedness of the nonrenewable local energy resources in Israel, even in the background of the later gas fields’ findings, continues to force the state to devote various efforts towards ‘green’ energy development. These efforts include installations, both for the solar and for wind energy, thus improving the diversity of energy sources. While the standard discounted cash flow (DCF) method using the net present value (NPV) criterion is extensively adopted to evaluate investments, the standard DCF method is inappropriate for the rapidly changing investment climate and for the managerial flexibility in investment decisions. In recent years, the real options analysis (ROA) technique has been widely applied in many studies for the valuation of renewable energy investment projects. Taking into account the above background, we apply, in this study, the real options analysis approach for the valuation of wind energy turbines and apply it to the analysis of wind energy economic potential in Israel, which is the context of our work. We hypothesize that due to nature of wind energy production uncertainties, the ROA method is better than the alternative. The novelty of this paper includes the following: real world wind statistics of the Merom Golan site in Israel (velocity 3.73 m/s, with a standard deviation of 2.03 m/s), a realistic power generation estimation (power generation of 1205.84 kW with a standard deviation of about 0.5% in annual value which is worth about 1.3 M$ per annum), and an economic model to evaluate the profitability of such a project. We thus discuss the existing challenges of diversifying renewable energy sources in Israel by adding wind installations. Our motivation is to introduce a method which will allow investors and officials to take into account uncertainties when deciding in investing in such wind installations. The outcomes of the paper, which are obtained using the method of Weibull statistics and the Black–Scholes ROA technique, include the result that market price volatility adds to the uncertainties much more than any wind fluctuations, provided that the analysis is integrated over a long enough time.

Assessment of Wind Speed Statistics in Samaria Region

“…The power curves of available turbines are described in [66,67], from which three examples are analyzed in this paper and are depicted in Figure 34. Among the turbines analyzed, the largest is Enercon's model E101/3000 turbine with a radius of 50.5 m. Hence, we will assume from now on that the hub of the turbine is 70 m. Table 9 will summarize the area and radii of the turbines under study: For this height, we obtain a speed average of 8.8 m/s.…”

Assessment of Wind Speed Statistics in Samaria Region and Potential Energy Production

“…The power curves of available turbines are described in [52,53], from which three examples were analyzed in this paper and are depicted in Figure 34.…”

How Can Wind Turn Into Electricity?

“…However, motors have a big disadvantage: they require fuel. The various materials that can be used as fuels, including coal, natural gas, and oil, all cost money [1]. Furthermore, these fuels are finite, meaning they will run out one day.…”