Risk assessment of wind power generation project investments based on real options

This paper presents a decision-making tool for investment in a wind energy plant using a real options approach. In the first part of the work, the volatilities of market prices and wind regimes are obtained from geometric Brownian motion with mean reversion (GBM-MR) and Weibull models, respectively. From these and other values, such as investment and maintenance costs, the net present value (NPV) curve (made up of different values of NPV in different periods) of the investment is calculated, as well as its average volatility. In the second part, a real options valuation method is applied to calculate the value of the option to invest. The volatility of the NPV curve reflecting different periods is inserted into a trinomial investment option valuation tree. In this way, it´s possible to calculate the probabilities of investing right now, deferring the investment, or not investing at all. This powerful decision tool allows wind energy investors to decide whether to invest in many different scenarios. Several realistic case studies are presented to illustrate the decision-making method.