Cash flow at risk of offshore wind plants

Abstract

Offshore wind power plants might be seen as high risk investments. Their risk depends on technical and financial elements. When some corporations decide to invest in a plant, they decide to take all above-mentioned risks. The question “Given a specific investor, a specific plant, etc., how big are the investment risks?” has not a clear answer. In fact, the impact of the previous risk factors on cash flows is not completely quantified, mainly because all the risks are related, but the dependency structure is difficult to be modelled. Hence, it is important to have a measure of the impact of the risks into the cash flows. Due to the lack of knowledge in this quantification, we have decided to investigate it more in the detail. The paper aims to measure the variability of cash flows and how effective are the strategies for locking electricity prices, ship freight rates, or both in the reduction of this variability. We adopt the Monte Carlo approach for simulating all the possible cash flows and for measuring all the uncertainties. The output shows that seasonal and uncertain cash flows. The strategies, for reducing the probability of negative cash flows, work only with locked electricity prices.