Land-use change and solar energy production: a real option approach

Ardjan Gazheli and Luca Di Corato ()

Agricultural Finance Review, 2013, vol. 73, issue 3, 507-525

Abstract: Purpose - – In this paper, a real option model is developed to examine the critical factors affecting the decision to lease agricultural land to a company installing a PV power plant. Subsidies introduced by governments for the production of renewable energies have increased the investments in this sector. Since ground-based solar cells need land for energy production, then potential trade-off with agriculture in terms of land exists. The paper aims to discuss these issues. Design/methodology/approach - – The paper uses the real option approach in order to take into account for uncertainty and irreversibility of the farmer's decision. Findings - – By applying the model to the province of Bologna (Italy), the paper illustrates the possible land-use change scenarios in this area. The paper concludes by discussing the importance of PV energy production as a source of income for farmers and its implications from a social perspective. Originality/value - – The research is applied to the province of Bologna (Italy) where investments in ground-based solar cells are becoming quite common. The originality lies in the fact of considering the investment as irreversible, since it is a 20-year commitment from the farmers. The paper also takes into account the uncertainty in agricultural commodities' prices.

Keywords: Uncertainty; Renewable energy; Real options; Land allocation; Solar farm (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Land-use Change and Solar Energy Production: A Real Option Approach (2011)
Working Paper: Land-use Change and Solar Energy Production: A Real Option Approach (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:afrpps:v:73:y:2013:i:3:p:507-525

DOI: 10.1108/AFR-05-2012-0024

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