Application of an advanced real options approach for renewable energy generation projects planning

E.A. Martínez-Ceseña and J. Mutale

Renewable and Sustainable Energy Reviews, 2011, vol. 15, issue 4, 2087-2094

Abstract: Nowadays, there is growing interest in renewable energy (RE) generation projects due to environmental and sustainability concerns. However, initial costs and uncertainties caused by RE source variability, changes in support schemes, and other factors can render RE projects unattractive when subject to conventional financial assessment. Initial research suggests that the value of RE projects can be enhanced by the application of real options (RO) theory in the planning and evaluation of such projects. Literature on application of RO planning in RE generation projects is limited, and typically focuses solely on flexible investment decisions and neglects flexible designs. A more comprehensive approach should address flexibility in designs. This paper proposes an advanced RO methodology for RE generation projects planning, and illustrates the methodology using variations of a hydropower case study. The fundamental differences between advanced RO approaches and other techniques are illustrated on a simple case study. The complete version of the proposed advanced methodology is then compared against other available tools. The results show higher expected profits for projects planned with the advanced RO methodology.

Keywords: Real; options; (RO); Uncertainty; Optimization; Mixed-integer; nonlinear; programming; Hydropower (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1364-0321(11)00040-2
Full text for ScienceDirect subscribers only

Related works:
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:rensus:v:15:y:2011:i:4:p:2087-2094

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/600126/bibliographic
http://www.elsevier. ... 600126/bibliographic

Access Statistics for this article

Renewable and Sustainable Energy Reviews is currently edited by L. Kazmerski

More articles in Renewable and Sustainable Energy Reviews from Elsevier
Bibliographic data for series maintained by Catherine Liu ().