The Value of Renewable Energy and Subsidies: An Investor's Perspective
47 Pages Posted: 9 Jan 2020
Date Written: December 18, 2019
I provide a novel theoretical approach to value wind energy investments. It allows to adjust for a number of risk parameters, including wind speeds, electricity price forecasts, discount rates, and uncertainty in subsidies. I use this approach to model wind energy investments under two different subsidy schemes in Denmark through a numerical Monte Carlo simulation. Moreover, I model wind energy investments under the assumption of a subsidy-free asset class. I compare the three systems and expose them to various sources of uncertainty through which I provide more clarity on which risk parameters matter most to wind energy investors and how the three systems compare to each other.
Keywords: energy finance, valuation, project finance, subsidies
JEL Classification: G10, G20, Q50, (Q48)
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