The financial risks from wind turbine failures: a value at risk approach

Mikindani, Dorcas; O’Brien, John; Leahy, Paul; Deeney, Peter

The financial risks from wind turbine failures: a value at risk approach

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The financial risks from wind turbine failures a value at risk approach.pdf(1.14 MB)

Published Version

Date

2024-07-21

Authors

Mikindani, Dorcas

O’Brien, John

Leahy, Paul

Deeney, Peter

Publisher

Taylor & Francis

Published Version

https://doi.org/10.1080/00036846.2024.2380542

Abstract

This paper models the financial risk associated with the cost of turbine failures over the lifetime of a wind farm. These failures cause significant variation in realized profit on wind generation projects. A model of the fault generating process is presented and industry data is used to parameterize the model. The model is then used to measure the financial risk associated with the wind project. Risks are measured using the financial metrics Value at Risk (VaR) and Conditional VaR (CVaR) metrics. The study shows that the 95% lifetime VaR of a turbine is equivalent to 52% of the initial capital expenditure. However, as the number of turbines in a farm increases, this risk diminishes. These findings have significant implications for small-scale projects, particularly community projects.

Keywords

Risk analysis , Wind energy , Turbine failures , Diversification

Citation

Mikindani, D., O’Brien, J., Leahy, P. and Deeney, P. (2024) 'The financial risks from wind turbine failures: a value at risk approach', Applied Economics. https://doi.org/10.1080/00036846.2024.2380542