Renewable energy investments with storage: a risk-return analysis
International Journal of Energy Sector Management
ISSN: 1750-6220
Article publication date: 2 October 2018
Issue publication date: 23 October 2018
Abstract
Purpose
The purpose of this paper is to study investments in renewable energy projects which are jointly operated with an energy storage system, with particular focus on risk-return characteristics from the perspective of private and institutional investors, taking into account resource risk, energy price risk, inflation risk and policy risk.
Design/methodology/approach
To this end, this paper presents a stochastic discounted cash flow model which is then applied to a wind farm with a pumped hydro storage system.
Findings
The results show that energy storage systems have the potential to increase the expected present value of future investment cash flows and to hedge (downside) risk. However, to realize this potential, storage systems have to be cost-effective in terms of fixed operation, maintenance, staffing and insurance costs. Also, several key factors are identified which have a considerable influence on the performance of the operation strategy.
Originality/value
The paper contributes to the literature by conducting an analysis of (downside) risk and return of renewable energy investments with a storage system taking into account stochastic policy, resource, inflation and energy price risk.
Keywords
Acknowledgements
The authors gratefully acknowledge financial support by the German Insurance Science Association and support by the Emerging Fields Initiative of FAU (EFI-project “Sustainable Business Models in Energy Markets”).
Citation
Krömer, S. and Gatzert, N. (2018), "Renewable energy investments with storage: a risk-return analysis", International Journal of Energy Sector Management, Vol. 12 No. 4, pp. 714-736. https://doi.org/10.1108/IJESM-02-2018-0009
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited