EMPIRICAL ANALYSIS OF WIND POWER GENERATION PROFITABILITY IN CROATIA∗

Saša Žiković, Ivan Grzeta () and Ivana Tomas Žiković ()
Additional contact information
Ivan Grzeta: Faculty of Economics University of Rijeka

Economy of eastern Croatia yesterday, today, tommorow, 2015, vol. 4, 537-546

Abstract: There is an ever-growing importance of renewable energy sources in today's world. The need for the renewable energy emerged due to the perception of scarcity of fossil fuels, their high costs, as well as their geopolitical concentration and oligopoly of certain companies and countries. One of the renewable energy sources, which is very popular in Croatia, is the wind power. A significant hurdle in assessing the viability of investing in wind farms is the stochastic nature of wind, variable and often hidden costs of construction and maintenance, which depend on the position of wind farms, as well as their relatively low efficiency. All of these factors make the wind farms completely dependent on the heavily subsidized renewable electricity prices. When calculating the costeffectiveness of a complex project such as the wind farm, it is not possible to use traditional methods of valuation, such as the method of net present value and internal rate of return. Under the national strategy of promoting renewable energy, wind farms have been given top priority as an alternative energy source, but due its unpredictability, investors are not fully confident in the viability of such projects. The purpose of this paper is to investigate the reality of assumptions behind the classical valuation of wind farm projects by using Monte Carlo simulation. Unlike the traditional methods, Monte Carlo simulation provides a broader and a more realistic view of the project valuation and provides an insight into the key variables that determine the investment's profitability. It also provides us with input/output flexibility, and possibility to adapt to market changes. Our results show that investing in wind farms in Croatia, under the current circumstances, is only marginally profitable. Although traditional valuation methods suggest the opposite, detailed analysis shows a lot of critical points and project viability seems highly questionable.

Keywords: Profitability analysis; Energy; Wind power; Renewable energy; Croatia (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.efos.unios.hr/repec/osi/eecytt/PDF/Econ ... omorrow04/eecytt0453 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:osi:eecytt:v:4:y:2015:p:537-546

Access Statistics for this article

More articles in Economy of eastern Croatia yesterday, today, tommorow from Josip Juraj Strossmayer University of Osijek, Faculty of Economics, Croatia Contact information at EDIRC.
Bibliographic data for series maintained by Hrvoje Serdarusic, PhD ( this e-mail address is bad, please contact ).