Application of real options valuation for analysing the impact of public R&amp;D financing on renewable energy projects: A company′s perspective

Martín-Barrera, Gonzalo; Ramírez, Constancio Zamora; González, José María González

doi:10.1016/j.rser.2016.05.073

Cited by 27 publications

(6 citation statements)

References 37 publications

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“…According to Kjaerland [39], Lee [52], the traditional methods such as DCF were not useful and adequate for valuing the renewable energy projects, consequently the ROA has been proposed and applied. They expressed several reasons such as underestimating the value of technologies, the lack of flexibility of conventional methods in management decisions, and the lack of attention to market uncertainties for not using the traditional valuation methods.…”

Section: Suitable Approach and Methods For Technology Valuation Of Sucmentioning

confidence: 99%

Technology valuation of NTBFs in the field of cleaner production with regard to the investors’ flexibilities and uncertainties in public policy

2019

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Technology valuation, especially in the early stages of new technology-based firms (NTBFs) growth is one of the most critical challenges, which most often hinders the investor and entrepreneur's deals during the venture capital (VC) financing process. It is clear that uncertainties arising from the likelihood of implementing public policies could significantly affect the volatility of NTBFs cash flows in the field of cleaner production. Commonly, these kinds of technologies require public supportive policies for achieving success. Consequently, their technology valuation is more challenging and traditional valuation methods are not suitable anymore because of the definitive assumption of cash flow and ignoring the investors' flexibilities and uncertainties. Therefore, this paper proposes a method by introducing a framework based on the decision tree and the real options analysis which is tailored to meet the technology valuation of such firms during all stages of their growth. Furthermore, unlike previous papers that have utilized the compound options, option to choose has been used to apply investors' flexibilities. Then, the proposed framework is supported by a case study, which has been conducted to verify and validate it. Finally, the conclusion section discusses the contributions and limitations of the study and provides directions for future research.

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Section: Suitable Approach and Methods For Technology Valuation Of Sucmentioning

confidence: 99%

Technology valuation of NTBFs in the field of cleaner production with regard to the investors’ flexibilities and uncertainties in public policy

2019

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“…Real options analysis (ROA), which seeks to price the future uncertainty of these projects, can be used as an indicator that complements traditional metrics based on a deterministic cash flow [39]. The real options theory has been applied with increasing frequency to the evaluation of RES projects [40][41][42]. Decisions are assumed to be fixed in the traditional analysis of investments through discounted cash flow, not allowing managers to expand or retract investments beyond the initial project estimate [39].…”

Section: Project Evaluation Techniquesmentioning

confidence: 99%

Methods for Financial Assessment of Renewable Energy Projects: A Review

et al. 2022

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The financial evaluation of renewable energy sources (RES) projects is well explored in the literature, but many different methods have been followed by different authors. Then, it is important to understand if and how these methods have been changing and what factors may have driven new approaches. Therefore, this article aims to explore the publications on the financial evaluation of RES projects from 2011 to 2020 and to present a critical analysis of the reviewed literature. The methods for evaluating RES projects were grouped into four categories: (i) traditional metrics based on net present value, internal rate of return, and payback period; (ii) levelized cost of electricity; (iii) return on investment approach; and (iv) real options analysis. A quantitative analysis was carried out considering aspects related to the relevance of the authors, productivity by country, and the most relevant journals for each of these groups. Then, a qualitative analysis of the main characteristics of the five most cited articles in each group was conducted. The results show that the more traditional methods are still widely used for the financial evaluation of RES projects. However, approaches based on the levelized cost and real options have been growing in importance to tackle the complex features of financial evaluation and comparison of RES projects.

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“…Recent applications of ROA, particularly in renewable energy investments, include Eissa and Tian (2017) who investigated the real options framework for solar power project considering the renewable certificate price and cost of delay between establishing and operating the solar power plant; Kim et al (2017) who assessed the renewable energy investment in developing countries with a case study involving a hydropower project in Indonesia; Kitzing et al (2017) who evaluated offshore wind energy investments in Baltic Sea under uncertainties in feed-in tariffs (FiT), feed-in premiums, and tradable green certificates; Loncar et al (2017) who used a compound real options valuation method to examine a potential onshore wind farm project in Serbia;and Zhang et al (2017) on estimating the optimal subsidy for renewable energy power generation project in China by using stochastic process to describe the market price of electricity, CO 2 price, and investment cost. Further, Barrera et al (2016) analyzed the impact of public research and development (R&D) financing on renewable energy projects, specifically on concentrated solar power; Eryilmaz and Homans (2016) examined the investment decisions of US renewable energy producers considering the uncertainties in federal government's continuation of the production tax credit policy and the market prices for renewable electricity credits; Fleten et al (2016) studied whether investors in renewable energy projects in Norway exert discretion about the timing of investment decisions when they face uncertainties in electricity price and subsidy; Ritzenhofen and Spinler (2016) assessed the impact of adjustments in FiT schemes on investment in renewable energy sources; Sisodia et al (2016) evaluated the investment strategies in wind-generated energy projects in Portugal under the risk in regulatory changes in Spain; and Wesseh et al (2016) evaluated whether the feed-in-tariffs outweigh the cost of wind energy projects in China. To the best of author's knowledge, there has not been any study analyzing investment decisions with various renewable energy options applying the ROA under uncertainty.…”

Section: Introductionmentioning

confidence: 95%

Use coal or invest in renewables: a real options analysis of energy investments in the Philippines

Agaton

2018

Renewables

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This paper aims to analyze the comparative attractiveness of either investing in various renewable energy sources or continue using coal for electricity generation in the Philippines. Using real options approach, this research evaluates the investment value and trigger prices of coal for switching technologies with some scenarios in coal price uncertainty and social discount rate. The results find that investing in renewable energy is a better option than continue using coal for electricity generation. Among renewable energy sources, geothermal is the most attractive to invest to, followed by wind, hydroelectric, and solar photovoltaic.

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Application of real options valuation for analysing the impact of public R&D financing on renewable energy projects: A company′s perspective

Cited by 27 publications

References 37 publications

Technology valuation of NTBFs in the field of cleaner production with regard to the investors’ flexibilities and uncertainties in public policy

Technology valuation of NTBFs in the field of cleaner production with regard to the investors’ flexibilities and uncertainties in public policy

Methods for Financial Assessment of Renewable Energy Projects: A Review

Use coal or invest in renewables: a real options analysis of energy investments in the Philippines

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