Modeling business risk: The effect of regulatory revision on renewable energy investment - The Iberian case |
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| Affiliation: | 1. Amrita School of Business, Amrita University, Coimbatore, India;2. FEP, University of Porto, Portugal;3. CEFUP, University of Porto, Portugal;4. ALGORITMI Research Centre, University of Minho, Portugal;5. Graduate School of Business, Faculty of Business Economics, The University of South Pacific, Suva, Fiji;1. School of Energy Science and Engineering, Central South University, Changsha, Hunan 410083, China;2. Department of Mechanical Science and Engineering, University of Illinois at Urbana-Champaign, IL 61801, USA;1. Centre for Energy and Environment, Malaviya National Institute of Technology, Jaipur, 302017, India;2. Civil Engineering Department, Malaviya National Institute of Technology, Jaipur, 302017, India;1. School of Resource and Environmental Engineering, Anhui University, Hefei 230601, China;2. CAS Key Laboratory of Urban Pollutant Conversion, Department of Chemistry, University of Science & Technology of China, Hefei, 230026, China;1. University School of Chemical Technology, GGS IP University, Delhi, India;2. Department of Chemical Engineering, IIT, Delhi, India;1. Université de Tunis El Manar, Ecole Nationale d''Ingénieurs de Tunis, LR11ES15 Laboratoire des Systèmes Electriques, 1002, Tunis, Tunisie;2. Université Fédérale de Toulouse Midi-Pyrénées, INPT, UPS, LAPLACE, 2 Rue Charles Camichel, BP 7122, F-31071, Toulouse Cedex 7, France |
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| Abstract: | Regulatory risk is commonly accepted as one of the most important risks in the energy business, particularly renewable energy. With the recent changes (in June 2014) in the Spanish regulatory framework, investors' returns might be significantly affected. Further, as the Spanish and the Portuguese electricity systems are integrated, a change in the regulatory framework of Spain might also affect renewable energy policies and investment strategies in Portugal. This study is a projection of business risk under the assumption that the Portuguese government may adopt similar regulatory changes. Monte Carlo method is used to simulate the data under different scenarios. Applying Net Present Value and Real Options approaches, a 50 MW wind power project is evaluated. This study has considered the delay option to study five regulatory scenarios. A higher value for the delay option suggests that a high financial loss is expected if new wind power projects of similar capacity are implemented under the new regulatory framework. |
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| Keywords: | Risk modeling Investment modeling Renewable energy business risk Regulation revision Regulation uncertainty Iberian market Renewable energy project |
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