Real Options Approach for Valuing Green Certificates

Jussi Vimpari and Seppo Junnila

ERES from European Real Estate Society (ERES)

Abstract: It seems that there is not a clear consensus among industry professionals on how green certificates should be valued, even though, there seems to be a consensus that certified properties are potentially valued higher than non-certified properties. This study aims to find out whether the potential extra value of a green certificate could be measured with real option valuation (ROV). Data was gathered from industry professionals using a standard discounted cash flow valuation method constructed in a spreadsheet. ROV was applied in the data using Collan's pay-off method. The results show that an average real option value of 985,000 Euro (or 8.8% premium to the average property value) was found for the green certificate. The main finding is that by examining the certificate as a real option, the potential extra value of a green certificate could be added into min and max case scenarios, thus, making it not necessary to alter the normal cash-flow scenario that should be based on the comparable data available from the market which is scarcely available for certified buildings.

JEL-codes: R3 (search for similar items in EconPapers)
Date: 2013-01-01
New Economics Papers: this item is included in nep-cfn and nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:eres2013_198

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