A valuation of wind power projects in Germany using real regulatory options

This study evaluates a proposed investment in wind power generation using real options from the regulatory framework applicable to the German market (Europe's largest producer of renewable energy). For this evaluation, we have modelled the primary uncertainties affecting the project and we have incorporated the uncertainties arising from public support for renewable energy. These mechanisms generate RROs (real regulatory options) - not in the hands of the project's promoter - that affect the net present value of the project The inclusion of these mechanisms enriches and improves the valuation methodology of such projects. The comparative analysis of the case study, using other countries, reinforces the idea that the existing RROs depreciate the net present value of renewable generation projects. We believe that the methodology we propose in our paper can help policy makers to improve their policies to promote renewable energy. (C) 2014 Elsevier Ltd. All rights reserved.