An Evaluation of Investment in a PV Power Generation Project in the Gobi Desert Using a Real Options Model

Yiqing Li, Weiguo Yang, Lixin Tian and Jie Yang
Additional contact information
Yiqing Li: Energy Development and Environmental Protection Strategy Research Center, Jiangsu University, Zhenjiang 212013, China
Weiguo Yang: Faculty of Science, Jiangsu University, Zhenjiang 212013, China
Lixin Tian: Energy Development and Environmental Protection Strategy Research Center, Jiangsu University, Zhenjiang 212013, China
Jie Yang: Faculty of Science, Jiangsu University, Zhenjiang 212013, China

Energies, 2018, vol. 11, issue 1, 1-16

Abstract: This paper presents a policy benefit model of a photovoltaic (PV) power generation project based on real options analysis (ROA) and the two-factor learning curve model. The main purpose is to examine the investment behavior of developing a PV project in the Gobi desert considering multiple uncertain factors. We take the environmental cost of desertification control into account for the first time in the literature. Four other uncertain factors are thermal power cost, PV power generation cost, carbon prices, and government subsidy. A binary tree method is applied to solve the proposed model, and we obtain both unit decision value and optimal investment time. Our baseline scenario illustrates that ROA is more effective than net present value (NPV) analysis when dealing with uncertainty. Our simulation results show that the government could suffer a loss in accordance with the existing subsidy policy when investing in a PV project. Therefore, the subsidy should be gradually reduced. Finally, the influence of the subsidy policy on decision value is discussed, and an appropriate subsidy is determined accordingly.

Keywords: real options; two-factor learning curve; binary tree; unit decision value; optimal investment time (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.mdpi.com/1996-1073/11/1/257/pdf (application/pdf)
https://www.mdpi.com/1996-1073/11/1/257/ (text/html)

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:gam:jeners:v:11:y:2018:i:1:p:257-:d:127993

Access Statistics for this article

Energies is currently edited by Ms. Agatha Cao

More articles in Energies from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().