Estimating the profitability of hydropower investments with a case study from Turkey

Abstract

Energy demand has been increasing, but traditional sources of energy are depletable. New investments are needed in renewable energy production. Hydroelectric power plants are often considered a feasible renewable source of energy and are often organized as a public private partnerships (PPP). However, risk factors stemming from the macro environment as well as project conditions should be considered in performing feasibility studies. The objective of this study was to develop a method that can be used to predict the profitability of hydropower investments considering the relevant risk factors. To that end, a cash flow that represents the construction and operation period is set up, the risk factors involved in such projects are identified, the impacts of these risk factors on the cash flow parameters are assessed, and Monte Carlo simulation is performed to estimate the net present value (NPV) of a hydropower investment. The proposed method was tested in a hydropower investment located in Turkey and generated credible results that could be of great benefit to potential investors operating in similar conditions. The primary contribution of this research is the creation of a method that allows investors to assess the profitability of a hydropower investment by using a stochastic approach.

Keywords:

• renewable energy
• hydropower investment
• Monte Carlo simulation
• cash flow

Additional information

Notes on contributors

Emre Caner Akcay

Emre Caner AKCAY. Dr Emre Caner Akcay is currently postdoctoral visiting researcher and part-time instructor of Civil, Architectural and Environmental Engineering at Illinois Institute of Technology. Prior to joining IIT, Dr Emre Caner Akcay was a part-time instructor at Middle East Technical University. He received his PhD, MS and BS degrees in 2014, 2010 and 2008 at Middle East Technical University. His research interests include sustainability, information technologies in construction, project planning and design, contracting and project delivery systems.

Irem Dikmen

Irem DIKMEN. Professor and lecturer in the Construction Management and Engineering Division of the Civil Engineering Department in the Middle East Technical University. Her primary research interests include risk management, knowledge management, strategic management of construction companies and use of IT to improve the construction value chain. She also conducts extensive research in the area of risk management of BOT projects in Turkey. In addition to her research activities, she gives continuing education seminars and consultancy services to construction professionals about international business development and construction risk management.

M. Talat Birgonul

M. Talat BIRGONUL. Professor and lecturer in the Construction Management and Engineering Division of the Civil Engineering Department in the Middle East Technical University. His primary research interests include engineering economy, international construction, construction planning, macroeconomic aspects of the construction industry and claim management. Apart from his academic activities, he acts as an expert witness in Turkish courts and Arbitral Tribunals and gives a claim management consultancy service to leading construction companies. Currently, he is acting as the director of Construction Management and Engineering Division of the Civil Engineering Department in the Middle East Technical University.

David Arditi

David ARDITI. Dr David Arditi is currently Professor of Civil and Architectural Engineering at Illinois Institute of Technology. He is the founder and Director of the Construction Engineering and Management Program. Professor Arditi's area of expertise covers all aspects of construction project management, engineering and support. In his 40-year academic career, he conducted several funded research projects sponsored by federal and state agencies. He supervised the research work of a large number of PhD and MS students from diverse countries. Many of his former PhD students serve as professors in their respective countries, while many of his former MS students occupy respectable positions in industry all over the world. Dr Arditi and his research associates have published over 300 research papers in refereed national and international journals and in peer reviewed conference proceedings. He is currently serving on the editorial board of nine journals in the field of construction project management, and regularly reviews research proposals, papers and books for several research agencies and publishers. Dr Arditi is an active member of several professional societies including CMAA, ASCE, AACE, and PMI. He has served over the years in many international, national and regional committees and was on several organizing committees of national and international conferences. He delivered several invited lectures and keynote lectures at different venues. He is also the recipient of multiple awards, including being elected to the College of Fellows of CMAA in 2013, and being elected Professor of the Year by CAEE students in 2016.