Real Options Analysis for Land and Water Solar Deployment in Idle Areas of Agricultural Dam: A Case Study of South Korea

Seoungbeom Na, Kyeongseok Kim, Woosik Jang and Changgeun Lee
Additional contact information
Seoungbeom Na: Department of Civil Engineering, Chosun University, Gwangju 61452, Korea
Kyeongseok Kim: Department of Civil & Environment Engineering, Wonkwang University, Iksan-si 54538, Jeonbuk, Korea
Woosik Jang: Department of Civil Engineering, Chosun University, Gwangju 61452, Korea
Changgeun Lee: Department of Civil Engineering, Chosun University, Gwangju 61452, Korea

Sustainability, 2022, vol. 14, issue 4, 1-17

Abstract: This study presents a real options-based framework for investment in land and water solar power projects in the idle areas of agricultural dams. The following four-step framework was verified through a case study conducted in South Korea: (1) select the location and size of the project; (2) define uncertainties in the project data (construction cost, O&M cost, sunshine hours, and mechanical efficiency) and market data (inflation, discount rate, risk-free interest rate, and electricity selling price); (3) estimate cash flow and project volatility to calculate the option value using a binomial tree model; and (4) make decisions regarding project investment. A case study was conducted for the Naju Agricultural Dam (NAD) project, which has a net present value of −6.67 million USD, but will have a profit of 38.17 million USD after an abandonment option is applied using the proposed framework. Our contributions provide a framework for evaluating the economic feasibility of installing solar projects in idle areas of agricultural dams and for improving the profitability of solar projects using the abandonment option. The proposed framework can assist investors in planning solar projects in idle areas of agricultural dams.

Keywords: agricultural dam; idle space; land and water solar; real options; South Korea; uncertainty (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.mdpi.com/2071-1050/14/4/2297/pdf (application/pdf)
https://www.mdpi.com/2071-1050/14/4/2297/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:14:y:2022:i:4:p:2297-:d:751959

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().