Risk Analysis of Wind Energy Investments in Turkey

ABSTRACT

Wind energy is a reliable source for fulfilling energy demand. However, the wind power usage remains limited due to the investmental risks. Governments’ support on renewable energy compensates these risks partially. Traditional investment evaluation techniques that do not consider the compensations and risks associated with the wind energy investments are one of the main reasons for the limited usage of wind power. In this study a real option and Monte Carlo simulation–based methodology, which considers both risks and compensations associated with these investments, is proposed to evaluate wind energy investments. The model is applied to a wind turbine investment in Turkey in order to show the applicability of the proposed model. The results indicate that the option value created through wind energy investments due to the governmental compensations is very high; therefore the traditional investment techniques are not appropriate for evaluating wind energy investments.

Key Words:

• wind energy
• real options
• risk analysis
• investment evaluation
• renewable energy