The Value of Renewable Energy and Subsidies: An Investor's Perspective

42 Pages Posted: 9 Jan 2020 Last revised: 23 Jan 2021

Date Written: December 18, 2019

Abstract

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)

Suggested Citation

Kronies, Alexander, The Value of Renewable Energy and Subsidies: An Investor's Perspective (December 18, 2019). Available at SSRN: https://ssrn.com/abstract=3505951 or http://dx.doi.org/10.2139/ssrn.3505951

Alexander Kronies (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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