Wind power generation: An impact analysis of incentive strategies for cleaner energy provision in Brazil

Abstract

Brazil has adopted various strategies to encourage alternative renewable energy sources in pursuit of cleaner and sustainable energy production. To this end, strategies should support the reduction of the financial risk for potential investors in the renewable energy market. Therefore, this study aims to analyze the impact of incentive strategies on the financial risk of wind power generation projects in Brazil in different marketing environments. From a quantitative approach, using Monte Carlo Simulation in three scenarios, we evaluate the impact of funding from the National Development Bank and participation in the Clean Development Mechanism in the financial returns of the investor in a regulated contracting environment and free contracting environment, measured by the Net Present Value. We conduct a statistical analysis to find out if there were statistically significant differences in investor risk in each scenario. The main results of the study are as follows: the wind speed, the selling price of energy, and disbursement for the investment have the most significant impact on the financial return; the project viability probability is greater than 85% in all scenarios, regardless of the marketing environment; the regulated market is less risky for the producer than the free market, since there is a statistically significant difference in Net Present Value variances for all scenarios; in the regulated contracting environment, funding is critical to reducing risk; and carbon credit trading is not a suitable policy for providing financial security to renewable energy producers. Thus, we conclude that in Brazil the contracting of projects from auctions in the regulated contracting environment, with the support of the National Development Bank, has been important for neutralizing the producer's financial risks.