Multi-Stage Compound Real Options Valuation in Residential PV-Battery Investment

Yiju Ma, Kevin Swandi, Archie Chapman and Gregor Verbic

Papers from arXiv.org

Abstract: Strategic valuation of efficient and well-timed network investments under uncertain electricity market environment has become increasingly challenging, because there generally exist multiple interacting options in these investments, and failing to systematically consider these options can lead to decisions that undervalue the investment. In our work, a real options valuation (ROV) framework is proposed to determine the optimal strategy for executing multiple interacting options within a distribution network investment, to mitigate the risk of financial losses in the presence of future uncertainties. To demonstrate the characteristics of the proposed framework, we determine the optimal strategy to economically justify the investment in residential PV-battery systems for additional grid supply during peak demand periods. The options to defer, and then expand, are considered as multi-stage compound options, since the option to expand is a subsequent option of the former. These options are valued via the least squares Monte Carlo method, incorporating uncertainty over growing power demand, varying diesel fuel price, and the declining cost of PV-battery technology as random variables. Finally, a sensitivity analysis is performed to demonstrate how the proposed framework responds to uncertain events. The proposed framework shows that executing the interacting options at the optimal timing increases the investment value.

Date: 2019-10
New Economics Papers: this item is included in nep-cfn and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1910.09132 Latest version (application/pdf)

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:arx:papers:1910.09132

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().