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Probabilistic valuation for power generation projects from sugarcane in reserve energy auctions

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  • Medellin, Viviana A.C.
  • Hidalgo, Ieda G.
  • Correia, Paulo B.

Abstract

The power generation from renewable sources is an interesting alternative to the diversification of the energy matrix of a country. This paper presents a probabilistic valuation method for power generation projects from renewable sources. It focuses on biomass plants that use sugarcane bagasse. The main objective is to bring a wider knowledge surrounding projects for investors that participate in energy auctions. Therefore, the highlight is for the net present value that allows us to analyze the financial viability of projects. Two stochastic variables are involved in the problem, the power generation and the energy price in the short-term market. Monte Carlo Simulation and Discounted Cash Flow methods are employed. A case study is carried out for a biomass plant. Sensitivity analysis is presented for different values of investment, bid, and minimum attractive rate of return. For each simulated scenario, the probability distribution of the net present value, the average net present value, and the internal rate of return are calculated. For the analyzed case study, the return of the project is more sensible to the bid value than the investment cost. The proposed method can be used as a tool to assist investors in energy auctions from renewable sources.

Suggested Citation

  • Medellin, Viviana A.C. & Hidalgo, Ieda G. & Correia, Paulo B., 2018. "Probabilistic valuation for power generation projects from sugarcane in reserve energy auctions," Energy, Elsevier, vol. 147(C), pages 603-611.
    • Handle: RePEc:eee:energy:v:147:y:2018:i:c:p:603-611
    DOI: 10.1016/j.energy.2018.01.080
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    References listed on IDEAS

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    2. Monjas-Barroso, Manuel & Balibrea-Iniesta, José, 2013. "Valuation of projects for power generation with renewable energy: A comparative study based on real regulatory options," Energy Policy, Elsevier, vol. 55(C), pages 335-352.
    3. de Souza, Fabio Cavaliere & Legey, Luiz Fernando Loureiro, 2010. "Dynamics of risk management tools and auctions in the second phase of the Brazilian Electricity Market reform," Energy Policy, Elsevier, vol. 38(4), pages 1715-1733, April.
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    5. Seabra, Joaquim E.A. & Macedo, Isaias C., 2011. "Comparative analysis for power generation and ethanol production from sugarcane residual biomass in Brazil," Energy Policy, Elsevier, vol. 39(1), pages 421-428, January.
    6. Chavas, Jean-Paul, 2004. "Risk Analysis in Theory and Practice," Elsevier Monographs, Elsevier, edition 1, number 9780121706210.
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