Abstract

MANOTAS DUQUE, Diego Fernando. Evaluation of electric power generation projects in an environment of climate policy uncertainty. Entramado [online]. 2013, vol.9, n.1, pp.102-117. ISSN 1900-3803.

Abstract This article discusses the results of a financial evaluation model for medium-capacity hydroelectric generation plants taking into account uncertainty associated with variables such as electricity price, actual generation level, and climate policy, materialized in the form of the prices of emission reduction certificates. The model consists of two phases. The first is based on the discounted free cash flow method, and the second proposes an analysis based on a Monte Carlo simulation to consider the risk level of critical variables. Electricity prices were simulated by means of a generalized Wiener process, with trend and volatility parameters obtained from an analysis of average prices of bilateral agreements reported on the Colombian electric power market. For actual generation, an adjustment was made to a probability distribution based on plant factor information of a group of small hydroelectric power facilities on the Colombian market. Then, the financial risk indicators of the project were reviewed, and a sensitivity analysis was carried out at different price ranges of emission reduction certificates. The findings show that, while climate policy incentives are well-intentioned, their effectiveness on project profitability is not optimal if consideration is given to perspectives based on the price of emission reduction certificates.

Keywords : Electric generation projects; analysis of investments under uncertainty; emission reduction certificates.

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