Determining the Value of Governmental Subsidies for the Installation of Clean Energy Systems Using Real Options

Kim, Byungil; Lim, Hyunsu; Kim, Hyoungkwan; Hong, Taehoon

doi:10.1061/(asce)co.1943-7862.0000443

Cited by 32 publications

(7 citation statements)

References 13 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This paper evaluated the warranty-ceiling clause on NM 44 (New Mexico Highway 44) using the real options approach [32]. Kim et al (2012) proposed a real option-based framework for rationally quantifying the amount of government subsidies required by private entities in order to implement a clean energy generation system [33]. Park et al (2013) proposed a real option-based contract model to ensure appropriate privatization risk sharing in underground infrastructures between private entities and governments [34].…”

Section: Real Optionsmentioning

confidence: 99%

Profit Distribution in Guaranteed Savings Contracts: Determination Based on the Collar Option Model

2015

View full text Add to dashboard Cite

This paper seeks to determine the value of Energy Service Company (ESCO) contracts based on the guaranteed savings contracts, which are relatively widely used among ESCO contract models. A framework is proposed based on the collar option model to qualitatively calculate the profit distribution ratio between energy users and the ESCO. The profit distribution model is defined with the guaranteed and target savings, changes in energy cost reductions, and volatility. The model determines a profit distribution ratio such that the energy user offers the ESCO profits equivalent to the value of the guarantee. The model is evaluated using a case study. The model suggested in this study is expected to resolve previous issues with making decisions based on past experiences, as the profit distribution ratio is determined objectively. Moreover, it is possible to effectively assess various profit structures in guaranteed savings contracts according to changes in the guaranteed and target savings. Ultimately, this model is expected to assist in revitalizing the Korean ESCO market.

show abstract

Section: Real Optionsmentioning

confidence: 99%

Profit Distribution in Guaranteed Savings Contracts: Determination Based on the Collar Option Model

2015

View full text Add to dashboard Cite

show abstract

“…The limitations of traditional valuation methods such as discount cash flow or net present value (NPV) in evaluating such risks have motivated a number of studies to apply real options valuation (ROV) methods to energy efficiency (EE) investments in buildings (e.g., Kim et al 2012;Menassa 2011;Van der Maaten 2010). However, previous studies have focused primarily on market risks and lacked consideration of the impact of private risks.…”

Section: Energy Saving = Energy Consumption Reduction × Energy Unit Pmentioning

confidence: 99%

“…Particularly in commercial energy retrofit investments, the decision making directly relies on future market forecasts where an increase or decrease of the energy price will make EE investments more attractive or less attractive. That led most previous studies to focus on market risks as the main volatility factor in their ROV frameworks (to name a few, Kim et al 2012;Reedman et al 2006;Van der Maaten 2010).…”

Section: Market Risks Versus Private Risksmentioning

confidence: 99%

Financial Valuation for Commercial Energy Retrofits under Private Risks

Lee¹,

Choi²,

Gambatese³

et al. 2014

Construction Research Congress 2014

View full text Add to dashboard Cite

Investments in commercial energy retrofits are exposed to unique types of risks that can be placed into two categories of risk: market risks (risks due to volatile market conditions) and private risks (risks due to volatile energy consumptions). By identifying such risks as a major contributor to the financial barrier, most studies to date have focused on market risks, yet these studies lacked consideration of the impact of private risks. In response, this paper aims to present a real options valuation (ROV) which aids in determining the financial impact of private risks on commercial energy retrofit investments. In particular, the study focuses on the valuation of phased investments in a large building portfolio under private risks that contribute to the option to defer (wait-and-see). The ROV adapts the binomial lattice method based on the level of volatility that is estimated using Monte Carlo simulation. The ROV results of the one-phase strategy are compared to those of the two-phase strategy in order to quantify the benefit of the increased managerial flexibility of the phased investments. The valuation presented in this paper is expected to help building owners and investors make better-informed decisions in commercial energy retrofits and, as a result, effectively overcome the financial barrier. 524

show abstract

“…Real option approach has also become a useful way to forecast the uncertain revenue in toll concessions. Moreover, this method is more suitable for studies on concession items such as government guarantee [7], subsidies [8], and fare allocation, because these items can be essentially regarded as real options. Brandão et al conducted a detailed case study on Metro Line 4 of the São Paulo Subway System, where the real option approach is used to analyze the effect of the minimum demand guarantee (MDG) on value and risk [9].…”

Section: Introductionmentioning

confidence: 99%

Decision Making on Government Subsidy for Highway Public-Private Partnership Projects in China Using an Iteration Game Model

Huang

Chen

et al. 2021

PROMET

View full text Add to dashboard Cite

Government subsidy is an important responsibility of fiscal expenditure in public-private partnership (PPP) projects. However, an improper subsidy strategy may cause over-compensation or under-compensation. In this research, an iteration game model combining game theory and real option is established to describe the periodic decision-making process. The strategy game model is applied to characterize the behavioral interactions between stakeholders, and the real option theory is used to predict the project performance under the influence of their decisions. Besides, two new indicators, the efficiency of fund (SE) and the total extra cost paid by the private sector (ME), are proposed to evaluate the extra project revenue caused by each unit of the subsidy and the incentive effects of the subsidy. Consequently, the preliminary results indicate that a periodic and iterative negotiations regarding the subsidy will effectively improve the efficiency of fund compared to the traditional way. The results also show that it is important for the public sector to give incentives, encouraging the private sector to make more efforts on the project, rather than merely providing fund support. Further study will focus on more detailed and complicated behaviors of stakeholders based on the model proposed in this paper.

show abstract

Determining the Value of Governmental Subsidies for the Installation of Clean Energy Systems Using Real Options

Cited by 32 publications

References 13 publications

Profit Distribution in Guaranteed Savings Contracts: Determination Based on the Collar Option Model

Profit Distribution in Guaranteed Savings Contracts: Determination Based on the Collar Option Model

Financial Valuation for Commercial Energy Retrofits under Private Risks

Decision Making on Government Subsidy for Highway Public-Private Partnership Projects in China Using an Iteration Game Model

Contact Info

Product

Resources

About