An Assessment of Wind Farm Construction Efficiency Using the Real Option Method

Łukaszewski Tomasz () and Głoćko Wojciech ()
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Łukaszewski Tomasz: University of Szczecin, Faculty of Economics and Management, Institute of IT in Management, Mickiewicza 64, 71-101 Szczecin, Poland
Głoćko Wojciech: Chairman of the Board, Epa Wind sp. z o.o, Wojska Polskiego 156, 71-324 Szczecin, Poland

Folia Oeconomica Stetinensia, 2016, vol. 16, issue 2, 84-102

Abstract: From a developer’s point of view the construction of a wind farm in Poland is an investment project assessed in terms of economic efficiency. This paper discusses the selection of methods to be used for the assessment of such investments: it proposes to consider wind farm construction as an option and price it using models developed for the financial market. The purpose of the paper is to present a practical application of the option pricing method to the assessment of wind farm construction efficiency, in particular to compare the option and discount methods. Calculations are based with the example of an actual wind farm completed by one of the authors. The values of the project are different depending on the chosen method of estimation. The pricing carried out using the options method will lend legitimacy to the DCF result or suggest the verification of its correctness and review of the assumptions made. In both cases the application of the options method will have an advantageous impact on the investment decision.

Keywords: real options; efficiency assessment; wind farms (search for similar items in EconPapers)
JEL-codes: G13 G31 Q42 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:foeste:v:16:y:2016:i:2:p:84-102:n:7

DOI: 10.1515/foli-2016-0027

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