ModelChoice decision tree · Energy and utilities

Renewable Energy Project Selection

A 50 MW solar farm, a 30 MW wind farm, solar with storage, or no project?

Complexity: ★★★★★
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From the model’s decision tree

Best first decision: Hybrid Solar+Storage

The expected value of each first option when every later decision is also made well (the tree rolled back).

First decision	Expected value
Solar Farm (50 MW)	$3,652,000
Wind Farm (30 MW)	$600,000
Hybrid Solar+Storage	$4,915,000	✔ best
No Project	$0

Measure	Value
Expected value of the best strategy	$4,915,000
Chance of a loss on the best strategy	36.2%
Best outcome on the best strategy	$48,000,000
Worst outcome on the best strategy	−$56,000,000

The best strategy: chance of each outcome or less

S-curve (cumulative probability) of Hybrid Solar+Storage from the saved simulation.

The decision

An independent power producer (IPP) is evaluating three renewable energy projects for a site with both good solar irradiance and wind resources. Each technology carries different permitting risks, resource uncertainties, and sensitivity to government policy changes.

Objective

Maximize expected 20-year NPV. This model shows how technology choice interacts with regulatory, resource, and market risk in energy investments.

The options

Option 1: Solar Farm - 50 MW ($45M): Proven technology, fastest permitting, but revenue depends on solar irradiance and government tax credit (ITC) extension.
Option 2: Wind Farm - 30 MW ($52M): Higher capacity factor potential but more permitting risk (environmental reviews, bird/bat studies). Revenue highly dependent on wind quality.
Option 3: Hybrid Solar + Battery Storage ($62M): Highest cost but earns a storage premium for dispatchable power. Battery storage value depends on grid congestion and peak demand pricing.

The decision tree

The tree has 1 decision, 12 chance events and 28 outcomes. The best path is open: at every decision the best choice is marked, and the expected value beside each branch counts every cash flow from the start. Open any other branch to see what follows it.

DecisionChance event+$ cash flow on the branch

Decision: Energy Project Selection

Solar Farm (50 MW) −$45,000,000expected $3,652,000
Chance: Permitting & Grid Connect
- 55% On Scheduleexpected $15,640,000
  Chance: Policy & Subsidy Environment
  - 40% Favorable (ITC Extended)expected $26,550,000
    Chance: Solar Generation (Favorable)
    35% Above Average Sun +$85,000,000payoff $40,000,000
    50% Average Sun +$68,000,000payoff $23,000,000
    15% Below Average +$52,000,000payoff $7,000,000
  - 40% Neutralexpected $14,000,000
    Chance: Solar Generation (Neutral)
    30% Above Average Sun +$72,000,000payoff $27,000,000
    50% Average Sun +$58,000,000payoff $13,000,000
    20% Below Average +$42,000,000payoff −$3,000,000
  - 20% Unfavorable (Subsidy Cut)expected −$2,900,000
    Chance: Solar Generation (Unfavorable)
    30% Above Average Sun +$55,000,000payoff $10,000,000
    50% Average Sun +$40,000,000payoff −$5,000,000
    20% Below Average +$28,000,000payoff −$17,000,000
- 30% Delayed 12 Months −$3,000,000expected $3,500,000
  Chance: Policy (Delayed Project)
  - 35% Favorable +$65,000,000payoff $17,000,000
  - 40% Neutral +$50,000,000payoff $2,000,000
  - 25% Unfavorable +$35,000,000payoff −$13,000,000
- 15% Permit Blocked +$5,000,000payoff −$40,000,000
Wind Farm (30 MW) −$52,000,000expected $600,000
Chance: Permitting & Environmental
- 45% Approvedexpected $18,000,000
  Chance: Wind Resource Quality
  - 25% Excellent Wind +$95,000,000payoff $43,000,000
  - 50% Good Wind +$70,000,000payoff $18,000,000
  - 25% Below Average Wind +$45,000,000payoff −$7,000,000
- 35% Delayed (Environmental) −$5,000,000expected $6,000,000
  Chance: Wind Resource (Delayed)
  - 25% Excellent Wind +$88,000,000payoff $31,000,000
  - 50% Good Wind +$63,000,000payoff $6,000,000
  - 25% Below Average +$38,000,000payoff −$19,000,000
- 20% Blocked +$4,000,000payoff −$48,000,000
Hybrid Solar+Storage −$62,000,000expected $4,915,000 ✔ best
Chance: Permitting (Hybrid)
- 50% Approvedexpected $20,750,000
  Chance: Energy Market & Storage Value
  - 30% High Storage Premium +$110,000,000payoff $48,000,000
  - 45% Moderate Premium +$80,000,000payoff $18,000,000
  - 25% Low Premium +$55,000,000payoff −$7,000,000
- 35% Delayed −$4,000,000expected $8,400,000
  Chance: Energy Market (Delayed)
  - 30% High Premium +$100,000,000payoff $34,000,000
  - 45% Moderate Premium +$72,000,000payoff $6,000,000
  - 25% Low Premium +$48,000,000payoff −$18,000,000
- 15% Blocked +$6,000,000payoff −$56,000,000
No Projectpayoff $0

Change the numbers. Open the workbook with ModelChoice, change a probability or a cost in the tree, and the best decision updates at once.

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Key assumptions

Assumption	Value	Notes
Solar Farm Cost	$45,000,000	50 MW, $900/kW installed
Wind Farm Cost	$52,000,000	30 MW, $1,733/kW installed
Hybrid Cost	$62,000,000	Solar + 4-hour battery storage
Project Life	20 years	NPV of all revenue streams
Solar Permit Approval	55%	On schedule; 30% delayed, 15% blocked
Wind Permit Approval	45%	Lower due to environmental concerns
Permit Delay Cost	$3-5M	Carrying costs, redesign
Storage Premium Potential	High: $110M NPV	Peak shaving + ancillary services
Wind Revenue Range	$45-95M NPV	Widest range due to resource variability

The figures are illustrative: the companies and numbers are invented for teaching.

Try it in ModelChoice

Strategy Table. Compare solar, wind, and hybrid with risk-return frontier
Sensitivity Analysis. How do permit odds and energy prices affect project value?
Risk Profile. Which technology has the best risk-adjusted return?

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An illustrative example: the figures are invented for teaching. Last updated 9 October 2026.