Counterfactual comparisons of investment options for wind power and agricultural production in the United States: Lessons from Northern Ohio

Abstract

We analyze potential efficiency gains in wind power projects by comparing counterfactual investment decisions in two different scenarios under a real options framework. The first scenario is a standard wind power investment, where the investor rents the land from local farms. In the second scenario, the wind power investor buys the land and commercializes both electricity and crop production, thus shortening the revenue risk through the diversification. Both scenarios have a waiting option, with the wholesale prices leading the installation decision. We model the electricity price as a mean reverting process with jumps and with different jumping probabilities for the different seasons of the year. Corn prices follow a mean reverting process. The waiting flexibility was modeled as a bundle of European options. The results indicate that the waiting option is exercised in 100% of our simulations in both scenarios, suggesting the still important role of government policies to stimulate wind power. More importantly, in more than 90% of the simulations, the second scenario brought value to the investment. Furthermore, net present values are more sensitive to reductions in capital costs than electricity prices. These results can form the basis for more effective policies for the wind power sector.

A Review of Key Technologies and Trends in the Development of Integrated Heating and Power Systems in Agriculture

“…Foreign scholars actively conducted projects that combine crop production and wind power generation [ 36 , 37 ]. Due to the limitations of wind power in agriculture [ 25 ], some studies tried to combine it with other renewable energy sources to meet demand [ 38 , 39 ].…”

“…Partial replacement of fossil fuels with renewable energy [ 32 ] will not only produce substantial economic benefits but also help reduce GHG [ 33 ] and carbon emissions [ 34 ]. Econometric techniques were used to analyze agricultural data from the top 12 EU countries [ 35 ] and Iran [ 36 ] and agricultural energy consumption generally had a negative impact on agricultural economic benefits. Compared with developed countries, a large part of China is still in a traditional agricultural stage and thus the agricultural economic benefits lag far behind the developed countries.…”

Las opciones reales como metodología de evaluación de un proyecto en el sector de energía

“…Es importante mencionar que los precios de la energía son considerados como la fuente de incertidumbre principal en la mayoría de los estudios de valoración de proyectos en este sector, pero también se consideran otros factores. Los estudios realizados por Chen, Zhang, Wang, Zhu y Li (2018); Bjørgum (2016) y Scarcioffolo et al (2018) consideran como determinantes de gran importancia las fuentes de incertidumbre relacionadas con factores gubernamentales; así como también las mejoras tecnológicas y el mercado. Por su parte, Ming, Ping, Shunkun y Ge (2016) analizaron el impacto de la incertidumbre y la fluctuación del precio del combustible sobre la inversión.…”

“…como los deAgaton y Karl (2018),Acevedo et al (2018),Chen et al (2018),Ming et al (2016),Zhang et al (2016), en los que se evalúan proyectos en Filipinas, China, Mongolia e Indonesia. Para Norte América se cuenta con los estudios realizados porScarcioffolo et al (2018) y Fleten et al (2017; para Sur América se tienen los análisis realizados por Ahumada y Andalaft (2013) yMaya et al (2012), con casos en Chile y Colombia respectivamente, y para Europa, los estudiosde Fleten et al (2016), Fertig et al (2014,Gazheli y Di Corato (2013), Cartea y González (2012) y Westner y Madlener (2012), con evaluaciones en Noruega, Alemania, Italia y Holanda.…”