Investing in biogas: Timing, technological choice and the value of flexibility from input mix

Luca Di Corato () and Michele Moretto

Energy Economics, 2011, vol. 33, issue 6, 1186-1193

Abstract: In a stochastic dynamic frame, we study the technology choice problem of a continuous co-digestion biogas plant where input factors are substitutes 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)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988311001174
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Investing in biogas: timing, technological choice and the value of flexibility from inputs 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)
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:eee:eneeco:v:33:y:2011:i:6:p:1186-1193

DOI: 10.1016/j.eneco.2011.05.012

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().