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A New Look at the Economic Evaluation of Wind Energy as an Alternative to Electric and Natural Gas-Powered Irrigation

Dmitry Lima, Gregory Colson, Berna Karali, Bridget Guerrero, Stephen Amosson and Michael Wetzstein

Journal of Agricultural and Applied Economics, 2013, vol. 45, issue 4, 739-751

Abstract: An extension of the Guerrero et al. (2010) net present value (NPV) analysis using real options analysis (ROA) is offered to improve machinery replacement decisions. Specifically, the feasibilities of replacing natural gas irrigation systems with either electric or hybrid (electric/wind) systems are evaluated. Results indicate NPV and ROA criteria can yield opposite decisions depending on the stochastic nature of the parameters, reversibility of the investment, and flexibility of investment timing. For policy, NPV results indicate that replacing natural gas with a hybrid is on the cusp of being optimal. However, ROA indicates this NPV implication may not hold.

Date: 2013
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