Renewable and Sustainable Energy Reviews 95 (2018) 217–226

Contents lists available at ScienceDirect

Renewable and Sustainable Energy Reviews

journal homepage: www.elsevier.com/locate/rser

Generating a framework to facilitate decision making in renewable energy T

investments
⁎
Beliz Ozorhon , Arda Batmaz, Semih Caglayan
Bogazici University, Dept. of Civil Engineering, Bebek, 34342 Istanbul, Turkey

A R T I C LE I N FO A B S T R A C T

Keywords: The role of energy sector is quite crucial due to its economic, social, and political implications. World energy
Renewable energy consumption has increased significantly with the growth of world population and gross domestic product
Investment decision making throughout the history. There has been considerable increase in the renewable energy investments recently.
Analytic network process However, conventional fossil fuels are still the primary source of energy generation of the world. The major
objective of this study is to create a framework to support decision making process in renewable energy in-
vestments. For this purpose, main criteria that influence the decisions of the investors are determined based on
an extensive literature survey and investigation of sector practice. The relevant criteria are categorized under
three groups as technical, economic, and environmental & social. Then, interrelations between the criteria are
identified and analytic network process method is applied to obtain the importance weights. Based on the
findings of this research, economic criteria such as policies and regulations, availability of funds, and investment
cost are found to be the most significant factors in the decision process of renewable energy investments.
Research findings are expected to help (i) the investors assess the competencies of their investments and (ii) the
governments shape their policies in line with the needs of renewable energy investments in order to increase the
use of renewable energy.

1. Introduction
In the last few decades, focus of energy sector has shifted to re-
newable energy (RE). This pattern could be explained by the negative
effects of mostly used traditional fossil fuel consuming power plants.
Climate change and air pollution are two negative outcomes of the
traditional method [1]. Furthermore, since fossil fuels are finite energy
sources, they are expected to last one day in the future. Consequently,
agendas of most of the governments are filled with RE investments and
related incentives. On the other hand, fossil fuels are still the major
source of energy in the world. Fig. 1 shows the breakdown of electricity
generation by fuel type in 2014. It is observed from the figure that fossil
fuels account for two third of the generated electricity. Such a situation
demonstrates the dominance of fossil fuels in generating electricity.
Considering the environmental outcomes and limited available re-
serves, relying on fossil fuels is not a feasible strategy for both sus-
tainability and environmental issues. This is an undeniable fact that
sector participants including the governments have understood the si-
tuation and started to reshape their strategies in order to increase the
RE share in total energy supply. RE investments have therefore ac-
celerated recently. The breakdown of new capacity additions in 2015
could be seen in Fig. 2. Renewables excluding large scaled hydro power
plants are forming 53% of the total additions. Wind Power Plants (WPP)
comprise 62 gigawatt (GW) of those renewable investments while Solar
Power Plants (SPP) have a share of 56 GW [3].
Environmental awareness, technological developments, and gov-
ernment policies have accelerated the usage of RE sources in the energy
sector. Environmental awareness has been increased all around the
world through academic articles, publications of public and private
institutions and governments. There have also been tremendous tech-
nological developments in the field of RE technologies. Considerable
improvements have been reached in efficiency, investment cost in-
cluding initial and operation and maintenance (O&M) costs, and re-
liability [4]. Developments in research and development (R&D) field

Abbreviations: AHP, Analytic Hierarchy Process; ANP, Analytic Network Process; COPRAS, Complex Proportional Assessment; EIA, Environmental Impact
Assessment; EP, Equator Principles; FIT, Feed-In Tariff; GDP, Gross Domestic Product; GPP, Geothermal Power Plant; HPP, Hydroelectric Power Plant; IFC,
International Finance Corporation; IRR, Internal Rate of Return; MCDM, Multi Criteria Decision Making; NPV, Net Present Value; O&M, Operation and Management;
R&D, Research and Development; ROE, Return on Equity; RE, Renewable Energy; SPP, Solar Power Plant; WPP, Wind Power Plant
⁎
Corresponding author.
E-mail addresses: beliz.ozorhon@boun.edu.tr (B. Ozorhon), arda.batmaz@boun.edu.tr (A. Batmaz), semih.caglayan@boun.edu.tr (S. Caglayan).

https://doi.org/10.1016/j.rser.2018.07.035
Received 12 April 2017; Received in revised form 18 July 2018; Accepted 20 July 2018
Available online 30 July 2018
1364-0321/ © 2018 Elsevier Ltd. All rights reserved.
B. Ozorhon et al. Renewable and Sustainable Energy Reviews 95 (2018) 217–226

Other
Oil
6%
4%
Nuclear
11%
Coal
41%
Hydro
16%
Natural Gas
22%
Fig. 1. 2014 Fuel shares of electricity generation [2].
Nuclear
Large Hydro 6% 0%
9%
Gas
16% Renewable
(excl. Large
Hydro)
53%
Coal
16%
Fig. 2. Net power generating capacity added in 2015 by main technology [3].
have made RE technologies more competitive against fuel based tech-
nologies in terms of the cost. Government policies can affect both in-
dicators mentioned above and also further the sales prices for RE pro-
jects. There are some certain policies that are applied all around the
world. Support of R&D investments, investment incentives such as low
interest guarantees, tax incentives such as accelerated depreciation
opportunities, tariff incentives like feed-in tariffs (FITs), and tradable
certificates are some of them [5].
RE investors need to make choices between different technologies
with different cost structures and production uncertainties [6]. It is of
prime importance for them to select the ones providing the best return
for a given level of risk [7]. However, making an appropriate selection
among several alternatives is not an easy task. RE investment decisions
depend mainly on a number of dimensions such as economic, en-
vironmental, and technical aspects. Thus, there is a great necessity for
developing tools that support the decisions of potential RE investors.
The aim of this study is to generate a model to assist RE investment
decisions. With this objective in mind, a comprehensive literature
survey is conducted and sector practice is investigated to determine the
main criteria that affect the decision process. The relevant criteria are
classified under three categories as technical, economic, and environ-
mental & social. Besides, interrelations between the criteria are iden-
tified. In order to attain the importance weights, analytic network
process method is utilized.
2. Literature review
Investment decision criteria of RE projects have been investigated in
several studies. Among the earliest studies, Wiser and Pickle [8] ex-
amined the financing process for RE projects and estimated the impact
of financing terms on the energy costs. They reviewed five case studies
of renewable energy policies and concluded that ignorance and mis-
understanding of the project development and financing processes were
the key reasons why renewable energy technology policies had not been
effective. It was noted that policies not providing long-term stability
would increase the financing costs.
Painuly [9] proposed a framework to identify the barriers to re-
newable energy penetration and to suggest measures taken to deal with
them. He identified the barriers using a literature survey, site visits, and
interaction with the stakeholders. The barriers were categorized under
7 groups including the ‘market failure’, ‘market distortions’, ‘economic
and financial’, ‘institutional’, ‘technical’, ‘social, cultural and beha-
vioral’, and ‘others’. Several measures to overcome these barriers were
addressed including the ‘energy sector liberalization’, ‘guaranteed
markets’, ‘economic/financial incentives’, ‘government investments’,
‘information and awareness campaigns’, ‘standards and regulations’,
‘institutional measures’, ‘research and development’, ‘facilitating mea-
sures’, and ‘moral and ethical considerations’.
In the study of Afgan and Carvalho [10], multi-criteria evaluation of
RE projects and their related criteria were investigated. Parameters
were analyzed and synthesized under the information deficiency
method. A number of options with various characteristics were taken
into consideration for the evaluation. Generalized index of sustain-
ability rating was obtained for each option. The following energy in-
dicators were defined in the assessment of energy systems: ‘energy re-
sources’, ‘environment capacity’, ‘social indicators’, and ‘economic
indicators’.
Haralambopoulos and Polatidis [11] suggested a multi-criteria de-
cision-making framework for ranking RE projects. The established fra-
mework was based on PROMETHEE II outranking method. It had five
criteria including ‘fuel saved’, ‘return on investment’, ‘no of jobs cre-
ated’, ‘environmental index’, and ‘risk index’. The suggested framework
was further tested on a geothermal source located in the island of Chios,
Greece. It was claimed that the developed method would provide a
user-friendly approach, promote the synergy between different actors,
and facilitate building consensus.
Cavallaro and Ciraolo [12] worked on the feasibility of some wind
turbines in Salina Island by taking several criteria into account. Four
wind turbine configurations were considered as the options after
making the analysis of environmental conditions and the energy profile.
A multi-criteria algorithm was performed to rank the options from the
best to worst. The algorithm comprised a number of criteria such as
‘investment cost’, ‘operating and maintenance costs’, ‘energy produc-
tion capacity’, ‘fuel savings’, ‘technological maturity’, ‘realization
times’, ‘CO2 emissions avoided’, ‘visual impact’, ‘acoustic noise’, ‘impact
on ecosystems’, and ‘social acceptability’. A sensitivity analysis was also
conducted to test the robustness of the results.
Wang et al. [13] conducted a literature review in order to compile a
criteria shortlist for their study on multi-criteria decision analysis on
sustainable energy decision making process. In their study, criteria that
affect those investments were grouped under four main categories as
technical, economic, environmental, and social. Related sub criteria
were listed under those main categories. It was stated that the invest-
ment cost had been ranked as the most important criterion affecting the
investment decisions followed by the CO2 emission.
Kahraman et al. [14] used fuzzy decision making analysis for the
selection of best RE alternatives. The main categories were determined
as technological, environmental, economic, and socio-political. A total
of 17 criteria were distributed under these categories. Technological,
environmental, economic, and socio-political categories comprised 7, 3,
3, and 4 sub-criteria, respectively. The energy alternatives were ranked
as wind, solar, biomass, geothermal, and hydropower.
Kaya and Kahraman [15] made an analysis to find the best RE al-
ternative and optimum location in Istanbul by using an integrated
VIKOR-AHP methodology. They used Wang et al.’s [13] previously
explained criteria categorization as a source. The weights of the selec-
tion criteria were calculated by generating pairwise comparison

218
B. Ozorhon et al.
matrices of Analytic Hierarchy Process (AHP). The classical VIKOR and
AHP procedures were conducted under fuzzy environment. Wind en-
ergy was specified as the most appropriate RE alternative and Çatalca
was stated to be the best area for establishing wind turbines in Istanbul.
San Cristobal [16] conducted a study for the selection of best RE
project type in Spain by using VIKOR method. Seven criteria were used
to evaluate the alternatives including ‘power’, ‘investment ratio’, ‘im-
plementation period’, ‘operating hours’, ‘useful life’, ‘operation and
maintenance costs’, and ‘tons of CO2 avoided’. ANP method is utilized
to determine the weights of different criteria. It was stated that the
biomass plant alternative was the best alternative, followed by the wind
power and solar thermo-electric alternatives.
Aslani et al. [17] investigated the criteria that investors consider
when investing in RE projects in Iran. They composed their list by both
literature survey and investor responses. The list included seven criteria
under three main categories, which are technical, business and policies,
and environment. While the technical category had ‘engineering effi-
ciency’, ‘annual exploitability’, and ‘regional energy potentials’; busi-
ness and policies category had ‘finance’, ‘consumption market’, and
‘government policies’; and environment category had ‘energy payback
ratio’. The results showed that the most important factors were ‘gov-
ernment policies’, ‘consumption markets’, and ‘engineering efficiency’.
Masini and Menichetti [18] proposed a model structure that in-
vestigates the structural and behavioral factors that affect investment
decisions of the investors in RE. They collected data from European
investors and tested how the likelihood of investing in RE projects was
affected by the investors’ a-priori beliefs, their preferences over policy
instruments, and their approach to technological risk. It was also re-
ported that an increase of the RE share in the portfolio had positive
impact on the portfolio performance.
Yazdani-Chamzini et al. [19] proposed an integrated COPRAS
(COmplex PRoportional ASsessment) & AHP methodology to determine
the best RE project. They used seven decision criteria including ‘power’,
‘investment ratio’, ‘implementation period’, ‘operating hours’, ‘useful
life’, ‘operation and maintenance costs’, and ‘tons of emissions of CO2
avoided per year’. They also compared their model with five multi-
criteria decision making tools to validate the output of the proposed
model.
Stein [20] suggested a model to rank a number of electricity pro-
duction technologies. The model was based on AHP approach. The al-
ternatives were assessed in terms of four main criteria clusters: fi-
nancial, technical, environmental, socio-economic-political. The model
contained eleven criteria: ‘total overnight cost’, ‘variable O&M’, ‘fixed O
&M’, and ‘fuel costs’ in financial cluster; ‘average efficiency coefficient’
and ‘average capacity factor’ in technical cluster; ‘average external
costs’ and ‘loss of life expectancy’ in environmental cluster; ‘job crea-
tion’, ‘net import of energy’ and ‘fuel reserve years’ in socio-economic-
political cluster. It was noticed that wind, solar, hydropower, and
geothermal alternatives were significantly better than the rest even
after adjusting the weights of the criteria during sensitivity analysis.
Ahmad and Tahar [21] developed an assessment model to prioritize
four renewable options including hydropower, solar, wind, and bio-
mass. The assessment model was based on AHP approach. The model
had four main criteria and twelve sub-criteria. The main criteria were
identified as ‘technical’, ‘economic’, ‘social’, and ‘environmental’. The
sub-criteria were specified as ‘maturity’, ‘efficiency’, ‘lead time’, ‘tech-
nology cost’, ‘operational life’, ‘resource potential’, ‘feed-in tariff rate’,
‘public acceptance’, ‘job creation’, ‘CO2 emission reduction’, ‘impact on
environment’, and ‘land requirement’. It was concluded that solar was
the best option followed by biomass.
Şengül et al. [22] developed a multi-criteria decision support fra-
mework to rank RE supply systems in Turkey. Fuzzy TOPSIS method
was used for the analysis and the Interval Shannon's Entropy metho-
dology was utilized to determine the importance weights of the decision
criteria. A total of nine decision criteria were employed including ‘ef-
ficiency’, ‘installed capacity’, ‘amount of energy produced’, ‘investment
219
Renewable and Sustainable Energy Reviews 95 (2018) 217–226
cost’, ‘operation and maintenance cost’, ‘payback period’, ‘land use’,
‘value of CO2 emission’, and ‘job creation’. Four alternatives were
considered including regulator, hydro power station, wind power sta-
tion, and geothermal power station. The analysis showed that the hydro
power station was the best RE system in Turkey.
Strantzali and Aravossis [23] made a review of the decision support
methods applied to renewable and sustainable energy. They classified
the papers by their year of publication, criteria used, decision making
technique, energy type, geographic distribution, and the application
areas. They identified 36 criteria used to support decision making in
renewable energy projects. The criteria were collected under four main
categories including the technical, economic, environmental, and so-
cial.
In most of those studies in the literature, it is observed that selection
of the most proper RE alternative has precedence over the determining
criteria. However, in the scope of this research, the main motivation is
to create a model to support decision making in any type of RE projects.
In this context, all previous models regarding the RE investment deci-
sion making were reviewed and factors governing the RE decision-
making have been identified. Those factors are then refined in order to
obtain a final list of criteria and a more comprehensive and accurate
model compared to the previously developed ones. Sector practice and
examples were also examined in order to generate a more accurate
model. By analyzing the applications in the sector, the criteria list and
the categorization were reshaped. Besides, the model incorporates the
interrelations between its components and the influence level of each
component on the RE investment is quantified.
3. Research methodology
It is evident that investment decisions and related criteria do not
depend only on the investor itself. RE investments require different
participants such as investors, public authorities, lenders, technology
suppliers, and technical staff to come together. For instance, since
public policies and regulations are two important factors affecting the
RE investments, those investments must be realized in coordination
with the public authorities starting from the planning phase. Lenders
are also crucial actors. Due to the fact that equity power of the investor
may not be sufficient to fulfill the investment cost of the RE projects
itself, support of the creditors is inevitable. Besides, even if the investor
has the sufficient equity, it would not be feasible to develop a RE
project with 100% equity as it would prevent the investor from de-
veloping another project. Therefore, investments must be bankable and
investors should satisfy the lending criteria of the borrowers.
Relationships between the stakeholders of an investment are summar-
ized in Fig. 3.
Technology suppliers also constitute a significant component of the
RE investments. For instance, considering a WPP, naturally, the wind
turbine is the critical part both in technical and economic ways.
Selection of a proper turbine model is vital for such a WPP investment.
Hence, providing efficient coordination between the turbine supplier
Regulatory
Authority
Environmental
& Social
Policies and Technical
regulations Consultant
Consultant
Consultancy for
Consultancy for investor and lender
investor and lender
Supplier Investor
Producing and
Lender
Investment
supplying Granting loan
equipment decision
Fig. 3. Stakeholders affecting the investment decision.
B. Ozorhon et al.
and the investor is quite essential for the outcomes of the project.
Technical and environmental & social consultant firms also play a sig-
nificant role. Technical consultants assist investors in almost all phases
of an investment including planning, implementation and operation
phases in terms of technical aspects such as technical feasibility,
equipment selection, and construction planning. Similarly, environ-
mental & social consultants act as the advisors of the investors on en-
vironmental and social matters such as environmental risk analysis and
expropriation plan. Those consultants are also required by the lenders
before granting loans. In other words, both local and international
lenders request their borrowers to assign independent technical and
environmental & social consultants in due diligence and implementa-
tion phases. Reports of those consultants play a critical role on the
credit committee decisions of the lenders. Thus, in order to plan, de-
velop, and operate an investable RE project, several stakeholders
coming from different disciplines must act as a team. Investors must
take the expectations of those participants into account when assessing
the RE investment criteria.
The ultimate objective of this research is to clarify the main criteria
that affect RE investment decision making process from a holistic per-
spective and assess the priorities of those criteria by obtaining the views
of sector experts from different disciplines. For this purpose, a com-
prehensive literature survey was conducted to identify the most im-
portant criteria affecting RE investment decisions. Following that, those
criteria were reshaped with the help of the expert team and by in-
vestigating the sector practice. The interrelations among the obtained
criteria were assessed. Then, pairwise comparisons were done by the
experts and results were analyzed by analytic network process (ANP)
method. AHP and ANP are two commonly used multi criteria decision
making (MCDM) methods. AHP is applied via construing a hierarchical
model. This hierarchy works in a linear basis, which means that in-
terdependencies between elements are ignored. On the other hand, ANP
could be defined as a generalized version of AHP which takes the in-
terdependencies between the elements into account [24]. Since, ANP
considers the effect of interdependencies, structure of ANP models are
not hierarchical as they are in AHP. Rather than hierarchy, ANP models
could be defined as networks due to the interdependencies of the ele-
ments.
As the criteria set out in this study are interdependent, ANP was
selected as the proper method. After receiving the responses from the
experts, pairwise comparisons were entered into the software of Super
Decisions and relative importance weights of all the criteria were ob-
tained accordingly. In short, method applied to obtain the importance
weights of RE investment decision criteria consists of three main steps
which are model formation, pairwise comparison, and importance
weight calculation, respectively. A summary of the study was given in
the final section and some further suggestions were shared in order to
increase the number of successful RE investments.
3.1. Model formation
A detailed literature survey was conducted to form the criteria list.
It was observed that criteria that influence RE investments were
grouped under four main categories (clusters), namely technical, eco-
nomic, environmental, and social. As the criteria under environmental
and social are highly linked to each other, many sector participants
consider those two as a single term. Additionally, consultant firms of
the energy sector in the environmental area generally work on the so-
cial issues as well. Although there are some firms that specialize only in
social issues consultancy, general sector approach is to consider them in
the same category. Similar approaches are observed from investors and
lenders. Corporates generally form a team of specialists to deal with
environmental and social matters together. Lenders recognize en-
vironmental and social factors as one section in line with the interna-
tional standards.
There are two main international and globally accepted standards
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Renewable and Sustainable Energy Reviews 95 (2018) 217–226
applied. Those are International Finance Corporation (IFC) environ-
mental and social performance standards and Equator Principals (EP)
on environmental and social risk management for projects. Headlines of
the issues covered by the IFC environmental and social standards could
be summarized as assessment and management of environmental and
social risks, labor working conditions, resource efficiency and pollution
prevention, community health & safety & security, land acquisition and
involuntary resettlement, biodiversity, indigenous people and cultural
heritage [25]. EP contains principles such as review and categorization,
environmental and social assessment, applicable environmental and
social standards, environmental and social management system, sta-
keholder engagement, grievance mechanism, independent review,
covenants, independent monitoring, reporting and transparency [26].
Those two standard mechanisms are applicable all around the world.
For example, although Turkey has its own environmental and social
standards and Environmental Impact Assessment (EIA) process, most of
the leading commercial banks of Turkey require those international
standards in their projects. The reason behind is that those international
standards consider environmental and social issues from a more com-
prehensive perspective compared to the local standards. Considering all
of those issues it would be proper to merge the categories of environ-
mental and social in order to be in line with the sector practice. Hence,
the categories of the criteria were determined as technical, economic,
and environmental & social.
Having defined the structure of main clusters, all the criteria (ele-
ments) under these clusters were investigated. The comprehensive lit-
erature survey revealed 49 criteria. Among these, 14 of them are related
to the technical group, 18 in economic and 17 in environmental & social
category. It was observed that in some cases two or more criteria re-
ferred to the same meaning. For instance, ‘reliability’, ‘maturity of
technology’, ‘technological feasibility and continuity’, and ‘predict-
ability of performance’ were all addressing the reliability of the tech-
nology. Hence, all of those criteria were merged and renamed as ‘re-
liability of technology’. Similarly, in the economic category, ‘net
present value’, ‘economic value’, ‘finance’, and ‘return on investment’
were implying the importance of financial indicators. So, they were
combined and named as ‘financial indicators’. Similar revisions were
made to obtain a more accurate criteria list. Before determining the
final list, it was shared with the energy sector experts. The initial and
revised lists were discussed with the experts through a brainstorming
session. A refined list composed of 23 criteria has been achieved. The
final list of criteria and related sources are given in Table 1.
3.2. Technical aspects
Technical aspects of RE investments are quite significant, since
those are main indicators of the electricity production. Assessment of
the technical factors should commence at the very beginning of a RE
project. Criteria under the technical category directly affect the eco-
nomic outcomes. Therefore, not only the investors, but also the lenders
are very interested in the technical details of a RE project. Criteria in
this category are; efficiency, reliability of technology, production ca-
pacity of the plant, implementation and operational risk, local technical
know-how, and annual exploitability.
3.2.1. Efficiency (T1)
It could be defined as the ratio of output energy to the input energy.
In other words, efficiency shows how much energy could be produced
by using a particular energy source [15]. Energy efficiency is a key
factor on determining the production rates of a RE system. Efficiencies
of RE power plants have increased recently with the developments in
the field. As the investment cost per MW is higher in RE projects, ef-
ficiency could be a key element for RE investments.
3.2.2. Reliability of technology (T2)
This term refers to the stability of the technology in terms of
B. Ozorhon et al. Renewable and Sustainable Energy Reviews 95 (2018) 217–226

Table 1 3.2.6. Annual exploitability (T6)

Final List of Criteria. Energy generation capacity of a RE project depends on the variation
Cluster Factor Sources of availability of resources such as wind, solar power and water inflow.
Stability and fluctuations of those factors must be taken into account
Technical Efficiency [10,13,15,17,18] before deciding to invest in a RE project.
Reliability of technology [13–15]
Production capacity of the plant [12,13,16]
Implementation and operational [14]
3.3. Economic aspects
risk
Local technical know-how [9,14] Economic aspects are the foundations of an investment. All investors
Annual exploitability [17] develop a project to make profit. Since, they allocate certain amount of
Economic Investment cost [10,12–16]
money and time in a project, financial figures must be satisfying. Hence,
Operation and maintenance cost [12,13,15,16]
Realization time [14,16] all other aspects such as technical and environmental & social come
Financial indicators [13,15] after the economic outcomes. Furthermore, a bank would firstly focus
Service life [13,15,16] on the financial indicators of a project before confirming a loan request.
Policies and regulations [7–9,14,17,18]
Criteria under the economic category are; investment cost, operation
Risk attitude of the investors [18]
Confidence in market [18]
and maintenance cost, realization time, financial indicators, service life,
Macro-economic environment [9] policies and regulations, risk attitude of the investors, confidence in the
Availability of funds [9,14] market, macro-economic, and availability of funds.
Environmental & social Emission rates [13,15]
Land use [10,13–15]
3.3.1. Investment cost (E1)
Noise [12,13,15]
Effects on natural environment [9,13] It contains all cost components of a RE investment. For instance,
Social acceptability [9,12–15] when a WPP is considered, turbine costs, construction works, electrical
Job creation [11,13–15] works, project development costs, expropriation costs, taxes, and fi-
Safety [13,15] nancing costs are all calculated. Due to the fact that investment cost is
critical for the financial outcomes, every detail of it must be calculated
precisely. On top of it, investment cost is quite important for lenders
production throughout its lifetime. As the investors allocate a sig-
when determining the required loan amount.
nificant amount of fund on RE projects, it is crucial to have a trustable
RE technology. The revenue of a project depends directly on the pro-
3.3.2. Operation and maintenance cost (E2)
duction rate and thus, it is one of the most important figures in the
A comprehensive and less costly operation and maintenance con-
project cash flow. In case fluctuations take place in the production
tract is beneficial to the investors. Unless the scope of the operation and
rates, the cash flow of the project is affected in a negative manner. O&M
maintenance services is sufficient, serious problems may occur when a
performance of a project is also highly related to the reliability of
problem about the turbines or another critical equipment is en-
technology. If too many failures happen in the operation phase, O&M
countered. Besides, operation and maintenance costs are one of the
costs may increase significantly. As a consequence, both the investors
most important operational expenses of RE investments. Hence, an
and lenders look for a sufficient track record of the technology to be
operation and maintenance contract with a high payment amount
used.
would be a burden for the project cash flow.

3.2.3. Production capacity of the plant (T3)
It is related to both the installed capacity of the plant and yearly
working hours of the project considering both technical and economic
reasons. Since the electricity production and consequently the revenue
and project cash flow are highly dependent on these figures, it is a
critical component of the project and should be considered at the in-
itiation phase of the planning period.
3.3.3. Realization time (E3)
This term indicates the time necessary for a RE investment to be-
come operational. Since, the power plant is not able to produce elec-
tricity and generate cash before reaching the operation phase, time
overruns of the construction works can damage the project heavily.
Therefore, construction schedule of the project must be prepared in
details and should consider the unexpected cases.

3.3.4. Financial indicators (E4)

3.2.4. Implementation and operational risk (T4)
This term is used to determine the risk in the implementation and
operational phases of a RE project. In the implementation phase of a
project, construction works take place and debt amounts are high due
to the utilized loans. As a result, a problem in this phase may cause cost
and time overruns which may stress the cash flows of the projects. Legal
processes such as expropriation works could also be problematic.
Besides, problems such as curtailments and failures may occur during
the operational phase when the production starts. Consequently, po-
tential risks in both implementation and operation phases must be
analyzed beforehand.
3.2.5. Local technical know-how (T5)
Technical know-how is a significant determinant of RE investments.
Having the technical know-how in project teams would be helpful in
both investment and operational phases. If the team has sufficient
know-how, the number of technical problems would be less and in case
a problem occurs, the team would be able to take actions to recover.
Indicators such as internal rate of return (IRR), net present value
(NPV) and return on equity (ROE) are considered under this criterion.
After making the initial plans and budgets, the first thing that an in-
vestor examines is the financial indicators. According to those figures,
investors decide whether to invest in a project or not.
3.3.5. Service life (E5)
Service life refers to the lifetime of a RE project. If the service life of
a project is long enough, it means the time period which it will generate
cash is long as well. Considering the fact that first years of the service
life of a particular RE investment will be occupied by loan repayments,
it could be claimed that a long lasted service life will be in the favour of
the investor.
3.3.6. Policies and regulations (E6)
Government policies are extremely effective on RE investments. It is
observed that the reasons behind the increase in RE projects are policies
and related incentives. RE investors must be aware of all the related
policies and regulations before deciding whether to invest in a project

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or not. All the potential impacts of those policies must be taken into
account.
3.3.7. Risk attitude of the investors (E7)
Willingness for risk taking is a significant component in the RE in-
vestment decision process. Some investors look for higher risks in order
to obtain higher amount of return. On the other hand, another group of
investors concentrate on only the less risky investments to secure
themselves. Thus, risk approach of an investor is quite critical for the
investment decisions.
3.3.8. Confidence in market (E8)
Similar to the risk attitude of the investors, their confidence in the
market and its future is a decisive fact. The investors would opt for
stable markets rather than unstable and fluctuating ones. Besides, reg-
ulations and external interventions are other important points that are
investigated especially by the foreign investors before triggering an
investment.
3.3.9. Macro-economic environment (E9)
Macro-economic conditions of a certain country may be effective on
every single investment. Hence, macro-economic factors such as infla-
tion rate, gross domestic product (GDP) growth rate, interest rates and
employment levels might affect the RE investments. Investors examine
those figures and the project situation in line with the expected project
life.
3.3.10. Availability of funds (E10)
It is not feasible and also not affordable for investors to realize an
investment with 100% equity injections. Consequently, loan granted by
the lenders are vital for investors. Therefore, credibility of an invest-
ment should be assessed before deciding to enter an investment. Main
criteria that banks are looking for must be understood clearly and in-
vestment plans should be shaped accordingly.
3.4. Environmental & social aspects
Investors, public authorities and lenders have started to give much
more importance on environmental and social issues as a result of the
rise of awareness. Regulations of public authorities are stricter now
than they were in the past. Hence, obtaining the necessary environ-
mental and social permits requires more time and funds. In addition to
the local regulations, most of the lenders are looking for international
environmental and social standards such as IFC standards and EP to be
met in the projects that they finance. Criteria under the environmental
& social category are; emission rates, land use, noise, effects on natural
environment, social acceptability, job creation, and safety.
3.4.1. Emission rates (ES1)
Emission rates and related regulations have been getting tighter in
consequence of the global climate change and greenhouse effects.
Therefore, emission rates of gases such as CO2, NOx, CO and SO2 have
become one of the most significant criteria for the investments. As RE
investments are generally not subject to emission issues, the issue may
not seem as a matter of concern. However, emission rates must be taken
into account in some situations such as in geothermal power plants
(GPPs).
3.4.2. Land use (ES2)
This term is related to the land to be used in a RE investment. Since
those projects require the usage of a considerable amount of land, type
of the land becomes a matter of concern. For instance, if the land is
registered as a forestry land, necessary permits must be obtained.
Similarly, if the land is private, it should be expropriated properly in
line with the international standards. Hence, investors must consider
the land necessary for their investments and make their plans
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Renewable and Sustainable Energy Reviews 95 (2018) 217–226
accordingly.
3.4.3. Noise (ES3)
Noise could be an important issue in some cases. For instance, noise
generated by the wind turbines in WPPs may create serious problems
for people living around. Noise effect is considered as a serious issue
especially in international standards such as IFC standards and EP.
Unless potential noise effects are considered while selecting the turbine
locations, consequences might be costly for the investors.
3.4.4. Effects on natural environment (ES4)
RE investments might cause serious problems for the natural en-
vironment, which should be considered by the investors and must be in
line with the standards. For instance, shadow flicker effect of wind
turbines, fish passage necessities in hydroelectric power plants (HPPs)
and biodiversity requirements are the issues to be considered.
3.4.5. Social acceptability (ES5)
Investors must consider the reflections of the projects on the society.
It is possible to see the adverse effect of HPPs on daily life of the so-
cieties. There have been certain protests for those kind of effects.
Therefore, social acceptability must be obtained before starting an in-
vestment. Necessary meetings with the social entities and local people
should be done in order to prevent such problems.
3.4.6. Job creation (ES6)
Creating employment opportunities for local people is a must for the
investors. This would also increase the acceptability level of the project
within the local society. Additionally, considering that some people
may be affected and lose their income channels because of such pro-
jects, international standards require the investors to supply job op-
portunities for these people. In short, investors must take into account
the job creation chances of their investments.
3.4.7. Safety (ES7)
Safety and human life must be the priority of every investment.
Investors must consider the precautions for the safety issue in both
construction and operational phases. Necessary fund must be allocated
for safety.
3.5. Pairwise comparisons
After obtaining the final criteria list, interrelations between the
elements were determined to realize pairwise comparisons. The theo-
retical definitions of the elements were examined carefully and the
literature was reviewed to accurately form the interrelations. Initial
interrelations were decided according to the information obtained from
literature. However, creating the interrelation matrices with only the-
oretical knowledge would not be sufficient to achieve precise results.
Participant of the energy sector experts was inevitable. Considering the
multidisciplinary nature of the energy investments, a well-diversified
expert team with 8 people was formed. The experts have a minimum
experience of 5 years and are experienced in several RE investments.
The experts have different titles and responsibilities that helped to
obtain different and complimentary perspectives. Profile of the experts
is given in Table 2.
All experts were requested to review the interrelations obtained
from the literature and fill in the interrelation matrix. The responses
were obtained from the experts and inconsistencies were observed be-
tween them. All the responses of the first round were shared with the
experts and they were requested to review their answers. A consensus
was reached in the second round.
In the next step, the relative importance rates of the clusters and the
elements were determined. Scale set suggested by Saaty [27] was used
in the pairwise comparison matrices. According to the suggested fra-
mework, numbers starting from 1 to 9 are used to indicate the relative
B. Ozorhon et al. Renewable and Sustainable Energy Reviews 95 (2018) 217–226

Table 2 application of ANP. The network hierarchical model was defined and
List of experts. pairwise comparison matrices were entered to the software to get the
Interviewee/ Institution Position Expertise results. The formed network structure is presented in Fig. 4.
expert category (years) The importance weights of the clusters and elements were obtained
after forming the network model and entering the pairwise comparison
1 Local investor Chief financial officer 17
matrices derived by the experts. Super Decisions software forms 3 main
(CFO)
2 Local investor Manager 8
supermatrices as unweighted supermatrix, weighted supermatrix, and
3 Local investor Specialist 5 limiting supermatrix. Unweighted supermatrix is formed by the prio-
4 Foreign investor Manager 8 rities of the elements coming from pairwise comparisons. Weighted
5 Local lender Project finance 10 supermatrix is calculated by multiplying the priority of each element
manager
with its cluster's priority. Finally, the limit supermatrix is calculated by
6 Local lender Project finance 6
specialist increasing the weighted supermatrix to the powers. Values of the lim-
7 International Project finance 5 iting supermatrix reflect the priorities of each element of the network.
lender associate In order to find the importance weights of each element, their
8 Technical Business 19
priorities are multiplied with limiting weights of their related clusters.
consultant development
manager
For instance, limiting weight of element T1 is 0.12032 and the weight
of its cluster, which is technical, is 0.26275. Hence, weighted im-
portance rate of T1 is calculated by multiplying these two values as
Table 3 0.03161408. Importance weights of clusters and elements in respect to
Nine-point priority scale of measurement [28]. their influences of the investment decisions could be seen in Table 7
and 8, respectively.
Relative importance of i over j aij

i and j are of equal importance 1 4. Results and discussion

i is slightly more important than j
i is more important than j
i is a lot more important than j
i is overwhelmingly more important than j
importance weights of one element or cluster on another in respect to a
parent element. While value 1 indicates equal importance of two
components on a given element, value 9 is used to imply that the first
element is much more important than the second one with respect to
the parent element. Table 3 shows the nine-point priority scale.
Examples of those matrices are given in Tables 4–6. The experts
were requested, this time, to fill in the pairwise comparison matrices.
The initial responses were obtained and the comparison of the results
revealed that there were only few matrices where certain differences
occurred. Again, the responses of the first round were shared with the
experts for a final review. Some of the experts made revisions in their
responses and the desired results showing no major differences were
obtained.
Based on the final ratings obtained from the experts, as shown in
Table 4, in terms of influencing the financial indicators, efficiency is
slightly more important than reliability of technology. Experts consider
that production capacity of the plant is a lot more important than local
technical know-how in terms of influencing the technical cluster
(Table 5). A comparison among the 3 main clusters indicate that eco-
nomic cluster is slightly more important than technical, a lot more
important than environmental & social (Table 6).
3.6. Calculation of importance weights
After generating the pairwise comparison matrices, ANP method
was utilized to determine the importance weight of each element and
cluster. A software called “Super Decisions” was used for the
Table 4
Pairwise comparison matrices for the financial indicators.
Financial indicators Efficiency Reliability of Production capacity
technology of the plant
Efficiency 1 3 1/4
Reliability of 1/3 1 1/6
technology
Production capacity of 4 6 1
the plant
3
5
According to the importance weights, it is observed that the eco-
7
9
nomic cluster is the most influential cluster. It is followed by technical
and environmental & social clusters. Importance weight of economic
cluster is by far higher than the others. Since, economic return is the
most important factor for all investors, this result was expected. We can
also see a significant difference between the clusters technical and en-
vironmental & social. This can be explained by the fact that technical
factors are strongly linked to economic outcomes. Although, awareness
of environmental and social issues has increased significantly, reflection
of those to the economic factors is limited.
The three most important elements, namely policies and regula-
tions, availability of funds and investment cost, belong to the economic
cluster. Governmental policies are quite critical for the investment de-
cisions and incentives are the triggering factors. Without a proper in-
centive and regulation mechanism, RE investments may decrease
sharply. Investors do not tend to finance all the investments by their
equities. A considerable percentage of the investments is financed by
loans. Therefore, credibility and availability of the investments for
sufficient loans are quite important for the investment decisions. The
cost of investment is another determinant of investment decisions. An
increase in the investment budget corresponds to increases in the loan
amount, financing costs and equity injection rates. Thus, “investment
cost” is also regarded as an important factor in decision process.
The most effective elements in the technical cluster are determined
as annual exploitability, production capacity of the plant and im-
plementation and operational risk. As the first two are directly related
to the electricity generation amounts, such a finding makes sense. The
implementation and operational risk is also considerable for the in-
vestors because problems in both implementation and operational
phases might cause significant cost and time overruns.
In the environmental & social cluster, elements with the highest
importance weights are land use, emission rates and social accept-
ability, respectively. It is realized that their influences on the invest-
ment decisions are limited compared to the elements discussed above.
However, the rise of environmental and social awareness among the
investors has increased the importance of these factors recently.
Additionally, their low importance weights seem reasonable concerning
their limited effects on the economical outcomes.
The findings of this study differ from previous studies in some as-
pects. Although the importance weights of most factors confirm the
approaches in previous studies, discrepancies have been observed in
some of the factors. Main differences have been obtained in four factors,

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B. Ozorhon et al. Renewable and Sustainable Energy Reviews 95 (2018) 217–226

Table 5
Pairwise comparison matrices for the technical cluster.
Technical Efficiency Reliability of Production capacity of Implementation and Local technical Annual exploitability
technology the plant operational risk know-how

Efficiency 1 1 1/3 3 5 1/3

Reliability of technology 1 1 1/4 2 3 1/3
Production capacity of the plant 3 4 1 5 7 2
Implementation and operational 1/3 1/2 1/5 1 3 1/5
risk
Local technical know-how 1/5 1/3 1/7 1/3 1 1/7
Annual exploitability 3 3 1/2 5 7 1

Table 6 Table 7
Pairwise comparison matrices for the main goal: investment decision. Importance Weights of Clusters.
Investment decision Technical Economic Environmental & social Cluster name Importance weights

Technical 1 1/3 4 Economic (E) 0.65863

Economic 3 1 7 Technical (T) 0.26275
Environmental & social 1/4 1/7 1 Environmental & social (ES) 0.07862

namely efficiency, investment cost, emission rates, and job creation.
Emission rates and job creation are found to be less significant than
stated in the literature. Also, it is realized that there have been different
perceptions on factors such as efficiency and investment cost. The im-
portance weights of these factors are elucidated with the findings of this
study.
There have been various considerations on the effect of efficiency on
RE investment decisions. Aslani et al. [17] concluded that engineering
efficiency could have great influence on the investment decision. Ac-
cording to Wang et al. [13], efficiency had been the frequently referred
factor under technical category, which is an indication of its im-
portance. On the other hand, Kaya and Kahraman [15] declared that
technical efficiency had the lowest importance weight among nine
factors that had been utilized in their study. The findings of this study
show that efficiency is not among the most crucial factors. The influ-
ence level of efficiency on the RE investment decision can be regarded
as medium. Factors such as policies and regulations, availability of
funds, investment cost, and even macro-economic environment take
precedence of this factor. The major reason for this finding may be
attributed to the fact that as efficiency is related to the economic out-
comes of an investment indirectly, factors mentioned above are directly
linked. Hence, this factor falls behind the main economic indicators.
Effect of investment cost on RE investments has been considered in
several ways in the literature. Study made by Kaya and Kahraman [15]
revealed that investment cost efficiency was not among the most sig-
nificant determinants of the RE decision process. Furthermore, San
Cristobal [16] declared that investment ratio had relatively low impact
on RE investments. Nevertheless, in the study conducted by Wang et al.
[13], investment cost was found to be the mostly cited factor for RE
decisions in the literature. In this study, investment cost has been
ranked as the third factor among the 23 factors. A possible explanation
for this might be the significance of financial requirements of a project.
Loan amounts and equity injection requirements are generally ac-
cording to the investment budget. As these amounts can have great
impact on the economic outcomes of the investment, investment cost
appears to be a crucial determinant of the investment decision.

Fig. 4. View of the network model in super decisions.

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B. Ozorhon et al. Renewable and Sustainable Energy Reviews 95 (2018) 217–226

Table 8 the expert team. Pairwise comparison matrices were conducted to as-
Importance weights of elements. sess the relative importance weights. Finally, those inputs were entered
Element name Importance weights into the Super Decisions software to obtain the importance weights of
all clusters and elements in respect to the RE investment decisions.
Policies and regulations (E6) 0.19007 The economic cluster is found to be the most significant cluster
Availability of funds (E10) 0.14465
followed by the technical and environmental & social clusters, respec-
Investment cost (E1) 0.07817
Annual exploitability (T6) 0.07416
tively. The importance weights of the elements reveal that the elements
Production capacity of the plant (T3) 0.06525 under economic cluster are dominating the others. Policies and reg-
Financial indicators (E4) 0.06034 ulations, availability of funds and investment cost elements are the
Macro-economic environment (E9) 0.04905 most significant ones. The most important elements under the technical
Implementation and operational risk (T4) 0.04121
cluster are determined as annual exploitability and production capacity
Reliability of technology (T2) 0.04017
Confidence in market (E8) 0.03362 of the plant. Emission rates and social acceptability are specified as the
Efficiency (T1) 0.03161 key elements under the environmental & social cluster. However, it is
Risk attitude of the investors (E7) 0.03037 worth mentioning that importance weights of elements under this
Land use (ES2) 0.02551
cluster is quite limited compared to the others. It is reasonable that the
Realization time (E3) 0.02454
Operation and maintenance cost (E2) 0.02391
economic outcome is the most critical point for the investors. As the
Service life (E5) 0.02390 technical factors are more related to the economic outcomes than the
Emission rates (ES1) 0.01415 environmental & social ones, the importance weights of the technical
Social acceptability (ES5) 0.01261 issues are expected to be higher than the environmental & social ones.
Local technical know-how (T5) 0.01034
Some of the findings of this study are observed to differ from pre-
Effects on natural environment (ES4) 0.00781
Job creation (ES6) 0.00651 vious studies in some ways. Efficiency, investment cost, emission rates,
Safety (ES7) 0.00641 and job creation are the factors in which differences have been noticed.
Noise (ES3) 0.00563 It is realized that the importance weights of factors such as emission
rates and job creation have been reported to be too significant in pre-
vious studies. It is also observed that there has been no consensus on the
Emission rates has been regarded as one of the most critical para- importance weight of efficiency and investment cost. The findings of
meters of RE investment decisions. The study of Kaya and Kahraman this study are expected to elucidate this disagreement. The differences
[15] indicated that CO2 and NOx emission rates were the factors with between the findings of this study and the previous studies may be
highest weights. Wang et al. [13] stated that CO2 emission had been the explained by the perception and experience of the experts. As the ex-
most frequently cited environmental factor followed by NOx emission. perts have been doing business mainly in Turkey, they are affected by
CO, SO2, and particles emissions had also been utilized in the literature the conditions and the current agenda and vision of the country, which
in the RE investment decision making process. Nevertheless, the find- is expected.
ings of this study suggest that emission rates have only limited effects This study suggests that all the necessities and risks be considered
on the investment decision process. It is ranked 17th among 23 factors. before making an investment decision. The responses of the sector
This finding might be due to the fact that RE investments have less participants show that economic factors are by far the most important
effects on the environment compared to the conventional generation ones for the RE investments. Policies and regulations, availability of
methods. Thus, RE investment alternatives are not expected to have funds and investment cost account for more than 40% of the im-
considerably different environmental effects in terms of emission rates. portance weights. As a consequence, an investment decision will not be
Job creation has been perceived to have high influence on the de- feasible without having sufficient conditions to satisfy those three fac-
cision process. The work conducted by Kaya and Kahraman [15] re- tors. Hence, those factors could be considered as absolute musts for the
vealed that job creation was the third most significant factor following investors. Annual exploitability and production capacity of the plant
CO2 and NOx emission rates. Wang et al. [13] indicated that job crea- must also be analyzed in details. Furthermore, environmental and social
tion had been the most frequently cited social factor in previous studies. concerns and requirements must be taken into account by the investors.
However, this study demonstrates that the influence of the factor on RE As both governmental institutions and lenders determine strict en-
investments is quite low. It has been the 21st factor in the list. The vironmental and social requirements, investors must shape their in-
major reason leading to this finding might be the fact that although vestments to fulfill them. Land use, emission rates and social accept-
there are significant developments in awareness of environmental & ability are the most important criteria in that regard.
social issues, economic and technical issues are governing most of the In addition to the investors, governmental institutions should be
decision making process of the investors. Job creation is observed to aware of the need for RE investments and increase their support on
have limited effect on the decision process due to the fact that it cannot them. It is seen that policies and regulations is the most important
directly contribute to the economic outcomes. criterion, which is totally related to the decisions of public institutions
in the energy sector. Hence, public parties should reshape their policies
5. Conclusion and investment programs to satisfy the needs of the investors to in-
crease the RE share in the total energy production. If public authorities
Energy has a significant role in today's economic and social world. can establish efficient incentive mechanisms and maintain them under
Due to the rising environmental concerns, RE investments have become situations such as economic and political fluctuations, both local and
inevitable all around the world. The main purpose of this research is to foreign investors would feel more comfortable and increase their in-
create a framework to support decision making process in RE invest- vestments in the field of RE.
ments. For this purpose, an extensive literature survey was conducted
and meetings were organized with the energy sector experts including
investors, lenders and technical consultants. A total of 23 criteria were Funding
determined under 3 main categories, namely technical, economic, and
environmental & social. ANP was selected as the suitable MCDM This research did not receive any specific grant from funding
method to make the analysis due to its capability of considering the agencies in the public, commercial, or not-for-profit sectors.
interdependencies among the elements. In order to assess the priorities
of the elements, the relationships between them were determined by

225
B. Ozorhon et al.
Declarations of interest
None.
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