A public policy aid for bioenergy investment: Case study of failed plants

Asa O. Gonzalez, Berna Karali and Michael E. Wetzstein

Energy Policy, 2012, vol. 51, issue C, 465-473

Abstract: Recent failures of renewable energy plants have raised concerns regarding government's role in providing credit subsidies and have harmed the long-run development of renewable energy. The major reason for these failures lies in government loan appraisers not having a model that addresses these root causes and instead relying on traditional net present value (NPV) analysis. What is required is a model representing entrepreneurs' investment decision processes when faced with uncertainty, irreversibility, and flexibility that characterize renewable energy investments. The aim is to develop such a model with a real options analysis (ROA) criterion as the foundation. A case study comparing NPV with ROA decisions for 50 and 100 million gallon ethanol plants is used as a basis for future development of a template government loan appraisers can use for evaluating the feasibility of renewable energy investments.

Keywords: Ethanol; Real options; Net present value (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:51:y:2012:i:c:p:465-473

DOI: 10.1016/j.enpol.2012.08.048

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