Compound real options valuation of renewable energy projects: The case of a wind farm in Serbia

Lončar, Dragan; Milovanović, Ivan; Rakić, Biljana; Rađenović, Tamara

doi:10.1016/j.rser.2016.11.001

Cited by 55 publications

(39 citation statements)

References 37 publications

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“…The risk-neutral probability (q) and option value (C) are represented by Equations (7) and (8), respectively [24,27].…”

Section: Methodsmentioning

confidence: 99%

Economic Assessment of Flood Control Facilities under Climate Uncertainty: A Case of Nakdong River, South Korea

Kim

2018

Sustainability

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Abstract:Climate change contributes to enhanced flood damage that has been increasing for the last several decades. Understanding climate uncertainties improves adaptation strategies used for investment in flood control facilities. This paper proposes an investment decision framework for one flood zone to cope with future severe climate impacts. This framework can help policy-makers investigate the cost of future damage and conduct an economic assessment using real options under future climate change scenarios. The proposed methodology provides local municipalities with an adaptation strategy for flood control facilities in a flood zone. Using the proposed framework, the flood prevention facilities in the Nakdong River Basin of South Korea was selected as a case study site to analyze the economic assessment of the investments for flood control facilities. Using representative concentration pathway (RCP) climate scenarios, the cost of future flood damage to 23 local municipalities was calculated, and investment strategies for adaptation were analyzed. The project option value was determined by executing an option to invest in an expansion that would adapt to floods under climate change. The results of the case study showed that the proposed flood facilities are economically feasible under both scenarios used. The framework is anticipated to present guidance for establishing investment strategies for flood control facilities of a flood zone in multiple municipalities' settings.

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“…The risk-neutral probability (q) and option value (C) are represented by Equations (7) and (8), respectively [24,27].…”

Section: Methodsmentioning

confidence: 99%

Economic Assessment of Flood Control Facilities under Climate Uncertainty: A Case of Nakdong River, South Korea

Kim

2018

Sustainability

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“…Recent applications of ROA, particularly in renewable energy investments, include Eissa and Tian (2017) who investigated the real options framework for solar power project considering the renewable certificate price and cost of delay between establishing and operating the solar power plant; Kim et al (2017) who assessed the renewable energy investment in developing countries with a case study involving a hydropower project in Indonesia; Kitzing et al (2017) who evaluated offshore wind energy investments in Baltic Sea under uncertainties in feed-in tariffs (FiT), feed-in premiums, and tradable green certificates; Loncar et al (2017) who used a compound real options valuation method to examine a potential onshore wind farm project in Serbia;and Zhang et al (2017) on estimating the optimal subsidy for renewable energy power generation project in China by using stochastic process to describe the market price of electricity, CO 2 price, and investment cost. Further, Barrera et al (2016) analyzed the impact of public research and development (R&D) financing on renewable energy projects, specifically on concentrated solar power; Eryilmaz and Homans (2016) examined the investment decisions of US renewable energy producers considering the uncertainties in federal government's continuation of the production tax credit policy and the market prices for renewable electricity credits; Fleten et al (2016) studied whether investors in renewable energy projects in Norway exert discretion about the timing of investment decisions when they face uncertainties in electricity price and subsidy; Ritzenhofen and Spinler (2016) assessed the impact of adjustments in FiT schemes on investment in renewable energy sources; Sisodia et al (2016) evaluated the investment strategies in wind-generated energy projects in Portugal under the risk in regulatory changes in Spain; and Wesseh et al (2016) evaluated whether the feed-in-tariffs outweigh the cost of wind energy projects in China.…”

Section: Introductionmentioning

confidence: 99%

Use coal or invest in renewables: a real options analysis of energy investments in the Philippines

Agaton

2018

Renewables

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This paper aims to analyze the comparative attractiveness of either investing in various renewable energy sources or continue using coal for electricity generation in the Philippines. Using real options approach, this research evaluates the investment value and trigger prices of coal for switching technologies with some scenarios in coal price uncertainty and social discount rate. The results find that investing in renewable energy is a better option than continue using coal for electricity generation. Among renewable energy sources, geothermal is the most attractive to invest to, followed by wind, hydroelectric, and solar photovoltaic.

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“…The investment irreversibility in CCS retrofit implies an option to defer, similar to an American financial call option. On this occasion, discrete real options model, i.e., binomial or multinomial lattice model has an advantage over continuous model due to its greater application for American options and other more complex types of options, and is usually employed to assess CCS investment [17,19,32,33].…”

Section: Introductionmentioning

confidence: 99%

An Investment Feasibility Analysis of CCS Retrofit Based on a Two-Stage Compound Real Options Model

Cui

Zhao

2018

Energies

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Carbon capture and storage (CCS) technology is an attractive technique to help power enterprises with carbon emission reduction. In this paper, a two-stage CCS retrofit investment in an existing coal-fired power plant in China including the first stage (demonstration project) and second stage (commercial operation) is taken as a case to decide when and whether to invest. Distinguished from previous models, a binomial lattice compound real options model including the options to defer and expand is established. Further, the accounting approaches to certified emission reductions (CERs) based on the thermodynamics principle are first proposed concerning this model. We find the total invest value under compound options model is less than zero, although greater than that by NPV method. The results indicate carbon prices and subsidy policy, respectively, play a dominating role in initiating the CCS investment at the first and second stage. The growth in government subsidy at the first stage has obviously greater effects on decreasing critical carbon trading prices. Besides, the minimum critical carbon price is 87.09 RMB/ton with full subsidy, greater than the current price (56 RMB/ton). This also illustrates it is not the optimal occasion to invest in a CCS retrofit project for power enterprises.

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Compound real options valuation of renewable energy projects: The case of a wind farm in Serbia

Cited by 55 publications

References 37 publications

Economic Assessment of Flood Control Facilities under Climate Uncertainty: A Case of Nakdong River, South Korea

Economic Assessment of Flood Control Facilities under Climate Uncertainty: A Case of Nakdong River, South Korea

Use coal or invest in renewables: a real options analysis of energy investments in the Philippines

An Investment Feasibility Analysis of CCS Retrofit Based on a Two-Stage Compound Real Options Model

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