Macroeconomic impact on the risk management of offshore wind farms

The present study aims to develop a risk model to analyse offshore wind projects based on operational and macroeconomic data. The study investigates the underlying parameters defining the project-specific risk premium attached to an offshore wind project. These parameters are modelled as stochastic variables, and a probabilistic financial analysis is conducted using Monte Carlo Simulation. To calculate an interest rate based on operational characteristics, the present study assumes that two net present value equations yielding the same result can be written where certainty equivalent cash flows discounted at the risk-free rate and b) expected cash flows discounted at the cost of capital. The project-related risk is then estimated by solving the resulting equation for the unknown cost of capital. The macroeconomic factors are also considered as they impact the uncertainty associated with revenue and operating expenditure. The model developed to calculate the cost of capital is validated by comparing it with the data obtained for publicly traded renewable energy companies worldwide. Finally, the developed model is demonstrated for a fictitious ageing offshore wind farm under different economic circumstances. The parametric study is conducted on the effect of critical project-specific parameters such as the number of offshore wind turbines, the life extension duration, and the degree of uncertainty related to cash flows.

Automated summary

The present study develops a risk model for analysing offshore wind projects based on operational and macroeconomic data. The study investigates the parameters defining the project-specific risk premium attached to these projects and conducts a probabilistic financial analysis using Monte Carlo Simulation. The model takes into account both the operational characteristics and macroeconomic factors to estimate the project-related risk and validate the cost of capital calculations. The developed model is demonstrated on a fictitious ageing offshore wind farm under different economic circumstances, considering critical project-specific parameters.