RT Journal Article
SR Electronic
T1 Modern Portfolio Theory Meets Wind Farms
JF The Journal of Private Equity
FD Institutional Investor Journals
SP 83
OP 95
DO 10.3905/jpe.2004.391052
VO 7
IS 2
A1 John Dunlop
YR 2004
UL https://pm-research.com/content/7/2/83.abstract
AB The amount of wind power capacity in Europe and the U.S. is growing rapidly and becoming increasingly attractive to institutional private equity investors. We applied modern portfolio theory and the capital asset pricing model to wind farms to discover if the model can be successfully adapted to the wind power sector and if geographical diversification would reduce production volatility. By substituting stock return data with wind power production data, we found that beta can be a useful tool in risk measurement for wind farm selection. We also found that up to 30% of production risk can be diversified away in a practical portfolio to smooth cash flow returns.