Application of Real Options Theory to the Assessment of Public Incentives for Onshore Wind Energy Development in Spain

Jos Balibrea-Iniesta, Antonio S nchez-Soli O and Antonio Lara-Galera
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Jos Balibrea-Iniesta: Department of Civil Engineering, Escuela T cnica Superior De Ingenier a De Caminos, Canales Y Puertos, Polytechnic University of Cartagena, C/Ctra. De La Fuensanta, 19, Bajo B, 30012, Murcia, Spain,
Antonio S nchez-Soli O: Department of Civil Engineering: Construction, Escuela T cnica Superior De Ingenieros De Caminos, Canales Y Puertos, Polytechnic University of Madrid, Ciudad Universitaria - 28040 Madrid, Spain
Antonio Lara-Galera: Department of Civil Engineering: Construction, Escuela T cnica Superior De Ingenieros De Caminos, Canales Y Puertos, Polytechnic University of Madrid, Ciudad Universitaria - 28040 Madrid, Spain.

International Journal of Energy Economics and Policy, 2015, vol. 5, issue 3, 791-800

Abstract: This paper discusses the important development of electricity production from renewable energy in Spain. The regulatory framework has played a key role in this process, particularly the 661/2007 Royal Decree of May 25. The legislation grants certain rights to promoters. These rights can be characterized as options, allowing us to utilize a signifi cant number of theoretical and empirical studies in the fi eld of fi nancial option pricing in our analysis. Insofar as these derivative assets have underlying real and non-fi nancial assets (i.e., a wind farm), the rights provided for in Royal Decree 661/2007 can be considered real options. In this paper, a method is proposed to evaluate investment projects in Spanish wind power based on the Royal Decree. The value of these projects is certainly affected by the real options contained in the Royal Decree. Finally, public aid granted by the administration for the development of renewable energies is evaluated.

Keywords: Real Regulatory Options; Renewable Energy; Project Valuation (search for similar items in EconPapers)
JEL-codes: C63 H43 H54 H71 L51 L94 L98 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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