Currently I am in a very early stage of a thesis proposal. I am considering to forecast a confidence interval for the NPV of an off-shore wind-energy capital project.
I am looking for relevant parameters to include in my model. With my current knowledge I can come up with the following.
Energy Prices
The revenue comes from directly selling the generated energy, so I think it is important to take the variability of the energy prices into account.
Discount rate
The cash-flow revenue will be over a long term period. Let's say 20 years. I've learned that we must discount future cash-flows in order to obtain the NPV. I also see that the discount rate is constantly changing. Thus what discount factor what I use in order to discount my future cash-flows?
I think the better question is: How can I incorporate the stochastic nature of the discount rate to calculate the NPV?
Other Questions
Question: Besides the two about what are other relevant (stochastic) parameters that can I take into account to forecast the NPV?
I do not know very much yet, but I am very eager to learn. It's much appreciated if somebody could advise me on this matter.
Relevant (literature) sources are also more than welcome.
