Evaluating Investments in Renewable Energy Under Policy Risks

37 Pages Posted: 18 Oct 2015 Last revised: 12 May 2016

See all articles by Nadine Gatzert

Nadine Gatzert

Friedrich-Alexander University Erlangen-Nürnberg

Nikolai Vogl

Friedrich-Alexander University Erlangen-Nürnberg

Date Written: May 2016

Abstract

The considerable amount of required infrastructure and renewable energy investments expected in the forthcoming years also implies an increasingly relevant contribution of private and institutional investors. In this context, especially regulatory and policy risks have been shown to play a major role for investors when evaluating investments in renewable energy and should thus also be taken into account in risk assessment and when deriving risk-return profiles. In this paper, we provide a stochastic model framework in order to quantify policy risks associated with renewable energy investments (e.g. a retrospective reduction of a feed-in tariff), thereby also taking into account energy price risk, resource risk, and inflation risk. The model is illustrated by means of simulations and scenario analyses and applied to identify potential country diversification effects within a portfolio of onshore wind parks.

Keywords: Renewable energy, wind parks, policy risk, diversification, value at risk

Suggested Citation

Gatzert, Nadine and Vogl, Nikolai, Evaluating Investments in Renewable Energy Under Policy Risks (May 2016). Available at SSRN: https://ssrn.com/abstract=2675231 or http://dx.doi.org/10.2139/ssrn.2675231

Nadine Gatzert (Contact Author)

Friedrich-Alexander University Erlangen-Nürnberg ( email )

Lange Gasse 20
Nuremberg, 90403
Germany
+499115302884 (Phone)
+499115302888 (Fax)

HOME PAGE: http://www.vwrm.rw.fau.de

Nikolai Vogl

Friedrich-Alexander University Erlangen-Nürnberg ( email )

Lange Gasse 20
Nuremberg, 90403
Germany
+499115302887 (Phone)
+499115302888 (Fax)

HOME PAGE: http://www.vwrm.rw.fau.de/

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