A MCDM approach for project finance selection: An application in the renewable energy sector

Abstract

Renewable energy (RE) is emerging as a solution in order to replace fossil fuels and become the primary source of energy consumption. Investments in the RE sector involve huge amounts of capital but also many risks. Public sector plays an important role in promoting RE projects but due to the need for reducing public expenditure the private sector becomes essential in financing this type of projects. Project Finance is widely used in RE projects and is especially attractive to the private sector because it can fund major projects off balance sheet. The objective of this paper is to present a decision making tool for helping the private sector on the selection process of RE projects to be funded. The problem could be considered as a multiple criteria decision-making problem where both, financial and non-financial criteria have to be taken into account. Objective aggregation weights for those criteria are obtained using the Moderate Pessimism Decision Making approach and a final ranking of the projects is obtained.