Economic Risk of Wind Farm Investments in UAE: Evaluation through Real Options Approach

Gyanendra Singh Sisodia, Wafa Mohammed Ebrahim Al Mazrouei, Rajesh Mohnot and Aqila Rafiuddin
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Gyanendra Singh Sisodia: College of Business Administration, Ajman University, United Arab Emirates,
Wafa Mohammed Ebrahim Al Mazrouei: College of Business Administration, Ajman University, United Arab Emirates,
Rajesh Mohnot: College of Business Administration, Ajman University, United Arab Emirates,
Aqila Rafiuddin: Tecnologico de Monterrey, Mexico

International Journal of Energy Economics and Policy, 2023, vol. 13, issue 5, 658-666

Abstract: This study examines the potential of business investments in wind offshore farm in the United Arab Emirates through projection of five different possible scenarios. The evaluation was done by using real option approach and Monte Carlo simulation imbibing the potential risk on investment with the source of funds used. Our analysis indicates that the return on investments and the risk on delay option remain at the highest degree if the project is financed with 50% government support and 50% investor’s own equity. On the contrary, a 100% bank-financed project yields lowest investments return and lowest risk option to delay. This implies that the financial leverage and the high bank interest rate are significant factors in influencing the economic risk and return of the wind farm project. This research contributes to the existing literature by highlighting the significance of real options application in the most-sought energy sector – wind farm. Moreover, this will pave way for small and medium enterprises (SMEs) in the UAE to invest in this energy field.

Keywords: Renewable Energy; Wind Farm Investments; Real Options; Economic Risk (search for similar items in EconPapers)
JEL-codes: E22 G11 O22 Q20 (search for similar items in EconPapers)
Date: 2023
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