Investing in biogas: timing, technological choice and the value of flexibility from inputs mix

Luca Di Corato () and Michele Moretto

No 134, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: In a stochastic dynamic frame, we study the technology choice problem of a continuous co- digestion biogas plant where input factors are substitute but need to be mixed together to provide output. Given any initial rule for the composition of the feedstock, we consider the possibility of revising it if economic circumstances make it profitable. Flexibility in the mix is an advantage under randomly fluctuating input costs and comes at a higher investment cost. We show that the degree of flexibility in the productive technology installed depends on the value of the option to profitably re-arrange the input mix. Such option adds value to the project in that it provides a device for hedging against fluctuations in the input relative convenience. Accounting for such value we discuss the trade-off between investment timing and profit smoothing flexibility.

Keywords: Real Options; Flexibility; Technological Choice; Renewable Energy; Biomass; Anaerobic Digestion. (search for similar items in EconPapers)
JEL-codes: C61 D24 Q42 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011-06
New Economics Papers: this item is included in nep-ene
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Investing in biogas: Timing, technological choice and the value of flexibility from input mix (2011)
Working Paper: Investing in Biogas: Timing, Technological Choice and the Value of Flexibility from Inputs Mix (2009)
Working Paper: Investing in Biogas: Timing, Technological Choice and the Value of Flexibility from Inputs Mix (2009)
Working Paper: Investing in Biogas: Timing, Technological Choice and the Value of Flexibility from Inputs Mix (2009)
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