Methodology of Investment Risk Analysis for Wind Power Plants in the Brazilian Free Market

Abstract

Despite the strong growth of wind power in the world, it is considered a high risk investment due to variability and unpredictability of wind speed. If the energy trade occurs in the free market, there is another risk factor that is the short-term price. This study proposes a methodology of investment risk analysis for wind power plants using innovative stochastic models to generate synthetic time series of wind speed and short-term price. The simulation is implemented using the Monte Carlo method associated with a Cholesky decomposition. The cashflow's gross revenue is obtained through an energy trading model for the Free Contracting Environment (FCE) in Brazil. The investment analysis is based on probability distribution of Net Present Value (NPV) of the power plant's cash flow, as well as the Value at Risk (VaR) and the Conditional Value at Risk (CVaR). A case study was performed for Natal city of Rio Grande do Norte (RN) state in Brazil, and the results indicated the economic viability of the power plant. A sensitivity analysis is developed considering important parameters of the modeling, and its results provide information to the decision-making process.