De-Risking marine energy project development through improved financial uncertainty analysis
Shah, S; Buckland, H; Thies, PR; et al.Cohen, C; Bruce, T
Date: 20 June 2017
Conference paper
Publisher
ASME
Publisher DOI
Abstract
The financial performance of a marine energy project is based
on assumptions with significant uncertainty. To fully appraise
the risk, potential investors require an understanding of the
likelihood of deviations from the assumed most likely case for
a project’s financial performance. A Monte Carlo Analysis
(MCA) model with flexible ...
The financial performance of a marine energy project is based
on assumptions with significant uncertainty. To fully appraise
the risk, potential investors require an understanding of the
likelihood of deviations from the assumed most likely case for
a project’s financial performance. A Monte Carlo Analysis
(MCA) model with flexible user defined uncertainty definitions
for all inputs is developed for this study. A realistic tidal energy
project is used as a case study to compare the central, optimistic
and pessimistic Levelised Cost of Energy (LCOE) and Internal
Rate of Return (IRR) values derived using commonly used
deterministic methods and the probabilistic MCA model. The
improvement in decision support due to the probabilistic
analysis is shown and the possibility for misinterpreting the
deterministic results in highlighted. Two sensitivity analysis
methods are employed to identify key risks and emphasise the
need to use the most appropriate method for the type of analysis
being conducted. Finally, the significance of some commonly
ignored parameters is tested and shown to be important for
accurately appraising the investment risk in a real project. Thus
this paper provides guidance and tools to help investors make
informed decisions with confidence.
Engineering
Faculty of Environment, Science and Economy
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