Real option valuation in renewable energy literature: Research focus, trends and design

Kozlova, Mariia

doi:10.1016/j.rser.2017.05.166

Cited by 104 publications

(84 citation statements)

References 106 publications

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“…Real option is a right rather than an obligation for the holder to take a share affecting a real asset at a fixed cost during a specific time [28]. Real option theory acknowledges managerial flexibility and strategic adaptability to adjust an investment project under future uncertainties to maintain or enhance its profitability [41]. Generally, real option can be classified into six different types, including deferral option, growth option, expansion option, contraction option, switch option, and abandonment option [42,43].…”

Section: Real Option Theory and Its Applicationmentioning

confidence: 99%

“…Growth option refers to the right to take advantage of new investment opportunities in the future after a successful initial investment [44]. Expansion option or contraction option allows the investor to expand or scale back the project respectively [41]. Switch option refers to the right to switch the investment to an alternative usage and adjust the inputs or outputs to maximize the project value according to the change of external environment [45].…”

Section: Real Option Theory and Its Applicationmentioning

confidence: 99%

“…Switch option refers to the right to switch the investment to an alternative usage and adjust the inputs or outputs to maximize the project value according to the change of external environment [45]. Abandonment option implies to stop or sell the project to avoid further losses [41].…”

Section: Real Option Theory and Its Applicationmentioning

confidence: 99%

“…In Section 2.3, we have mentioned six typical types of real option. Among these options, the growth option is usually embedded in the newly developed industries, such as R&D and high tech projects with multiple generations of products [59]; while the switch option is a right for the investor to change the input materials or output products, generally appearing in the industries with high substitutability for inputs and outputs such as flex-fuel vehicles [41]. In this case, the studied PPP project has been already determined to provide PRH, and other types of products are beyond the scope of this paper.…”

Section: Real Option Identification During the Concession Period Of Amentioning

confidence: 99%

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Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

et al. 2019

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Public rental housing (PRH) in China is mainly invested by the government at present. The huge capital demand brings it great pressure and a series of problems appear meanwhile. Public–private partnership (PPP) has been regarded as a way to solve the funding dilemma of PRH. However, the PRH project is not attractive for the private sector since the expected profit seems unsatisfactory based on traditional valuation methods. To improve this situation, this paper proposed an investment valuation model from a real option perspective. For the private sector, three types of options, including deferral option, abandonment option, and expansion option, were identified during the concession period of a PRH PPP project. On this basis, a two-stage binomial tree model was constructed for estimating the investment value. Then, the proposed model was tested in a hypothetical example of a typical PRH PPP project in Chongqing, China. The result shows that great potential value can be excavated through flexible strategies and adaption to uncertainties. This paper provides a deep analysis on the gaps of the real option application in public housing investment assessment, which is meaningful for improving the supply efficiency and financial sustainability of PRH.

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Section: Real Option Theory and Its Applicationmentioning

confidence: 99%

Section: Real Option Theory and Its Applicationmentioning

confidence: 99%

Section: Real Option Theory and Its Applicationmentioning

confidence: 99%

Section: Real Option Identification During the Concession Period Of Amentioning

confidence: 99%

See 2 more Smart Citations

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

et al. 2019

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“…Real option analysis has been used in many industries to support investment decision-making. Good examples include the mining [3] and the energy [4] industries, and there are a number of different types of approaches for real option valuation available [5,6]. While ROA is winning ground in some industries, and the number of academic contributions on real options are steadily growing, the approach has not been universally adopted in the industry [7,8].…”

Section: Introductionmentioning

confidence: 99%

To Wait or Not to Wait? Use of the Flexibility to Postpone Investment Decisions in Theory and in Practice

Morreale

Mittone

et al. 2020

Sustainability

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Business sustainability and real options are closely connected, as real options are managerial flexibility that allows organizations to adapt to changes in their environment, thus making the organization more robust and economically sustainable. Studies in real options theory abound, yet there is still a lack of evidence on whether people make decisions consistently with the predictions made by real options models. We run a laboratory experiment to study the role of option value and the laboratory time required to resolve uncertainty in individuals' decision to price and adopt an option to wait. Specifically, we compare decision makers' choices in two investment scenarios: One with a short time to maturity (implying a low option value), and another with a longer time to maturity (implying a high option value). In the lab, both scenarios are implemented with the waiting time of twenty and sixty minutes. Our results show that decision makers deviate from the theoretical predictions, recognizing the benefit of waiting, when the value of the option is higher, or when the waiting time is shorter. Our study does not only bring more insights into real options adoption at the individual level, but also emphasizes the great potential of behavioral and experimental approach to bridge the gap between theory and practice in the real options literature.

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Development of a Quantitative Validation of Valuation Methods for Power Plants and Energy Systems Using a Simulation-Based Benchmark

2022

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Real option valuation in renewable energy literature: Research focus, trends and design

Cited by 104 publications

References 106 publications

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

To Wait or Not to Wait? Use of the Flexibility to Postpone Investment Decisions in Theory and in Practice

Development of a Quantitative Validation of Valuation Methods for Power Plants and Energy Systems Using a Simulation-Based Benchmark

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