Investment and risk appraisal in energy storage systems: A real options approach

Locatelli, Giorgio; Invernizzi, Diletta Colette; Mancini, Mauro

doi:10.1016/j.energy.2016.03.098

Cited by 70 publications

(20 citation statements)

References 40 publications

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“…The research of academic literature disclosed that DCF analysis is relatively easy to implement, widely taught, widely accepted and has many advantages over alternative investment evaluation methodologies (Thomas, 2001;Mun, 2006;Regan et al, 2015;Locatelli et al, 2016) However, under uncertainty strategic investment projects violate a large part of DCF assumptions, causing DCF analysis to be of limited value or misleading.…”

Section: Strategic Investment Project Valuation: Discounted Cash Flowmentioning

confidence: 99%

Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects

Pivorienė

2017

Economics and Business

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Abstract. In today's uncertain and highly competitive business environment, the difficulty to make strategic investment decisions is growing. The dominant discounted cash flow analysis requires the assumption of perfect certainty of project cash flows. However, under uncertainty traditional DCF approach falls short of providing adequate strategic decision support, and this situation demands new methods for investment evaluation. Real options approach (ROA) has shown the potential for valuation of strategic corporate investment decisions and managerial flexibility in situations of high uncertainty. Under ROA, projects are viewed as real options that can be valued using financial option pricing techniques. This framework allows their owner to keep investment options open and to benefit from the upside potential of an opportunity while controlling the downside risk. The main aim of this research is to investigate the feasibility of real options approach and traditional DCF analysis for assessment of strategic investment projects under environmental uncertainty.

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Section: Strategic Investment Project Valuation: Discounted Cash Flowmentioning

confidence: 99%

Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects

Pivorienė

2017

Economics and Business

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“…Cheng et al (2011) present a modified binomial lattice model to apply compound options to create a flexible management approach to decide clean energy strategies that are embedded with a lead time. Locatelli et al (2016b) apply compound options to energy storage plants. This work uses 'compound options' to simulate and assess the 'stage-gate process' typical of the power and energy sector.…”

Section: Ros In the Energy Sectormentioning

confidence: 99%

Appraisal of small modular nuclear reactors with ‘real options’ valuation

Locatelli

Pecoraro

Meroni³

et al. 2017

Proceedings of the Institution of Civil Engineers - Energy

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2 3 4Small modular nuclear reactors have the advantage of flexibility in deployment and shorter construction time compared with large reactors. Investment appraisals in the energy sector are traditionally based on discounted cash flow, but this tends to underestimate the value of management flexibility during the decision-making process. The 'real options' valuation method can better support an investment appraisal. This paper, leveraging the real options approach, gives an account of two key strategic aspects to support the decision-making process in building small modular reactors: the time to market with the relative stage-gate process and the effect of a new plant on the existing portfolio. This paper assesses small modular reactors against other base-load power plants and, once applied to the UK scenario, it shows the superior performance of small modular reactors.differential coefficient' of a linear exercise threshold dp differential price dz differential Wiener process e Euler's number E expected ECTC t expected cost to complete the construction at time t ECTC threshold expected cost to complete the construction threshold ECTD t expected cost to complete the design at time t ECTD threshold expected cost to complete the design threshold G* gas price triggering the investment G 0 gas price at the time now G t gas price at time t I is the investment rate K remaining cost,'multiplication factor' of a linear exercise threshold P* price triggering the investment P 0 price at the time now P LB lower bound price P lim price limit P SR sharpe ratio price

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“…Although photovoltaic systems and energy storage technologies for use in buildings and in industrial applications were intensively investigated mainly in terms of load management and peak shaving [19][20][21][22], the prediction of the impact of photovoltaic systems [22][23][24][25][26], energy storage technologies and EV interaction on centralised generation is somewhat less explored, due to their complexity involving many parameters and control strategies [27][28][29][30][31][32][33][34][35][36][37][38][39].…”

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confidence: 99%

Numerical simulation analysis of the impact of photovoltaic systems and energy storage technologies on centralised generation: a case study for Australia

Brenna

Corradi

Foiadelli

et al. 2020

Int J Energy Environ Eng

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In response to climate change concerns, most of the industrialised countries have committed in recent years to increase their share of Renewable Energy Sources to reduce Greenhouse Gas emissions. Therefore, the rapid deployment of small-scale photovoltaic (PV) systems, mainly in residential applications, is starting to represent a considerable portion of the available electrical power generation and, for this reason, the stochastic and intermittent nature of these systems are affecting the operation of centralised generation (CG) resources. Network operators are constantly changing their approach to both short-term and long-term forecasting activities due to the higher complexity of the scenario in which more and more stakeholders have active roles in the network. An increasing number of customers must be treated as prosumers and no longer only as consumers. In this context, storage technologies are considered the suitable solution. These can be necessary in order to solve and fill the problems of the renewable distributed sources are introducing in the management of the network infrastructure. The aim of this work was to create a model in order to evaluate the impact of power generation considering PV systems in Australia along with a model to simulate Battery Energy Storage Systems (BESSs) and Electric Vehicles future contributions using MATLAB. The methodology used to develop these models was based on statistical assumptions concerning the available details about PV systems installed and current storage technologies. It has been shown that in all the scenarios analysed, the future adoption of rooftop PV panels and impact on the CG is incredibly higher than the uptake of energy storage systems. Hence, the influence on the demand will be driven by the behaviour of the PV systems. Only in the hypothetical scenario in which the installations of BESSs will assume comparable levels of the PV systems, it will be possible to better manage the centralised resources.

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Investment and risk appraisal in energy storage systems: A real options approach

Cited by 70 publications

References 40 publications

Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects

Real Options and Discounted Cash Flow Analysis to Assess Strategic Investment Projects

Appraisal of small modular nuclear reactors with ‘real options’ valuation

Numerical simulation analysis of the impact of photovoltaic systems and energy storage technologies on centralised generation: a case study for Australia

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