Wind power feasibility analysis under uncertainty in the Brazilian electricity market

- Settlement of differences in power generation is regarded by the investment analysis.
- Stochastic analysis incorporates the generating uncertainty in investment analysis.
- The impact of loan and trading of carbon credits in project risk is assessed.
- The value at risk is applied to evaluate the worst outcome expected by the producer.
- Loan has an important function of to reduce the investments risk in wind farms.

Investors must be able to plan and analyze their investments in order to optimize decisions and turn them into profits associated with a particular project. Since electricity producers in the Brazilian electric power system are exposed to a short-term market, the goal of this paper is to propose a framework for investment analysis capable of encompassing different uncertainties and possibilities for wind power generators in a regulated market, characterized by auctions. In order to reach the proposed objective we employ a simulation technique which allows modeling cash flows considering uncertainties in variables related to project financial premises, electricity generation and producer exposure to the short-term market. For such goal, this study presents a new approach for investment analysis that allows the identification of the main uncertainty parameters and risks associated to this class of projects in the Brazilian electricity market. We also employ the Value at Risk technique to perform a risk management analysis in such context.