R&D investment decision on smart cities: Energy sustainability and opportunity

Marta Biancardi, Antonio Di Bari and Giovanni Villani

Chaos, Solitons & Fractals, 2021, vol. 153, issue P2

Abstract: Public administrations frequently tend to make communities as much sustainable as possible pursuing smart city goals. Solar energy investments represent a valid opportunity to support smart cities and consequently the sustainable economic development. The valuation of these projects is not a simple task considering their sequential nature and riskiness. This article proposes a compound Real Options Approach (ROA) as a tool for potential investors to make a conscious R&D renewable investment decision on smart cities. In this sense, we fit the compound ROA with the framework of a typical smart city project in solar energy field. We also provide a case study to make a comparison between classical Expected Net Present Value (ENPV) approach and compound ROA. The results show that ENPV underestimates the project value, whereas compound ROA allows to obtain a more attractive valuation of the project by embedding in the analysis the managerial flexibility value.

Keywords: Smart city project; Expected Net Present Value; Compound Real Option Approach; Solar energy project (search for similar items in EconPapers)
JEL-codes: C73 D23 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:153:y:2021:i:p2:s0960077921009085

DOI: 10.1016/j.chaos.2021.111554

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