Switching outputs in a bioenergy cogeneration project: A real options approach

Oliveira, Denis Luis de; Brandão, Luiz Eduardo Teixeira; Igrejas, Rafael; Gomes, Leonardo Lima

doi:10.1016/j.rser.2014.04.023

Cited by 24 publications

(10 citation statements)

References 23 publications

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“…Another interesting application of the real options approach can be found in Oliveira et al [38], where the authors analyzed the feasibility of installing a cogeneration unit in an industrial plant in Brazil.…”

Section: The Use Of the Real Options Approach For The Valuation Of Enmentioning

confidence: 99%

The Valuation of the Operational Flexibility of the Energy Investment Project Based on a Gas-Fired Power Plant

2020

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This paper presents an attempt to the valuation of the operational flexibility of the energy investment project based on the example of combined cycle gas turbine (CCGT). For this purpose, the real options approach (ROA), net present value (NPV) method, and the Monte Carlo (MC) simulation have been used. Motivations to take up such a topic result from the fact that traditional valuation methods neglect flexibility embedded in CCGT assets. Operational flexibility was defined as the switching option to dynamically shut down and restart gas units. Valuation of the operational flexibility, the project’s extended net present value (XNPV), was based on a discounted cash flow model. The Monte Carlo simulation, allowing for better replication of the stochastic nature of market factors and some technical parameters, was introduced to the valuation model. The obtained results indicate that the value of the options significantly influences the NPV of the analyzed technology and its risk profile. The NPV was calculated at −169.1 million USD, while the XNPV amounted to 102.5 million USD. This difference, compared to the NPV distribution range at a significance level of 0.05, was more than 8.1% (almost 10.4% for α = 0.1). The results achieved help to explain the significance of the operational flexibility in the modeling profitability of CCGT technologies.

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Section: The Use Of the Real Options Approach For The Valuation Of Enmentioning

confidence: 99%

The Valuation of the Operational Flexibility of the Energy Investment Project Based on a Gas-Fired Power Plant

2020

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“…While the same might hold true for alternative land uses, the ability to adjust the land use composition and management intensity on an annual basis might substantially reduce subjective uncertainty for individual farmers (Di Falco and Perrings, 2003). In particular, we assume a natural logarithm for the SRC output price to follow a mean-reverting process (MRP), specifically an Ornstein-Uhlenbeck process (de Oliveira et al, 2014;Musshoff, 2012):…”

Section: Case Study: Reallocating Land To Perennial Energy Cropsmentioning

confidence: 99%

“…The choice of stochastic process is motivated by the assumption that the farmer is a price-taker in a market where the price fluctuates around a constant long-term level due to market forces, for instance, under the assumption of no monopolistic power (Metcalf and Hassett 1995) and/or of constant technology (Song, Zhao, and Swinton 2011). An MRP process is also assumed for SRC biomass price in the previous literature (Musshoff 2012;de Oliveira et al 2014). See Spiegel et al (2018Spiegel et al ( , 2017 for introduction of multiple (correlated) stochastic processes.…”

Section: Case Study: Reallocating Land To Perennial Energy Cropsmentioning

confidence: 99%

Stochastic-dynamic modelling of farm-level investments under uncertainty

Spiegel

Britz

Djanibekov

et al. 2020

Environmental Modelling & Software

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“…Option-to-switch between different products in a bioenergy cogeneration project was analyzed by De Oliveira et al [29]. Then Abadie [30] continued their studies on valuation of an operating coal-fired power station and a natural gas with the use of switching options exercised in cases when the electricity price was higher than variable costs (emissions, fuel, operation and maintenance).…”

Section: Literature Reviewmentioning

confidence: 99%

Valuation of Decision Flexibility and Strategic Value in Coal Gasification Projects with the Option-To-Switch between Different Outputs

2020

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Coal gasification has been promoted as a sophisticated clean energy technology alternative to coal burning these days. Aside from the usual technical difficulties, economic issues of such projects—especially valuation challenges—are important problems that practitioners usually struggle with. This is because of the major extent of managerial flexibility linked with specific characteristics of coal gasification projects, in particular, possibilities to mothball/restart manufacturing lines, or change between different outputs. The value of such flexibilities may be well assessed by real options valuations. The aim of this paper is to show that for the coal gasification technologies the real options valuation is more suitable than traditional discounted cash flow technique. This approach was applied to calculate an integrated plant that can produce either electricity or methanol. As the valuation approach the multiplicative stochastic process was used. As a consequence, binomial lattices of end-product (electricity and methanol) were developed. Then, in regard to them (reference instruments), two corresponding lattices of net cash flows (consecutive instruments) were created. In the end, two trees of switching option value were developed—one for electricity production as an initial mode, and the second for methanol production, delivering expanded net present (strategic) value.

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Switching outputs in a bioenergy cogeneration project: A real options approach

Cited by 24 publications

References 23 publications

The Valuation of the Operational Flexibility of the Energy Investment Project Based on a Gas-Fired Power Plant

The Valuation of the Operational Flexibility of the Energy Investment Project Based on a Gas-Fired Power Plant

Stochastic-dynamic modelling of farm-level investments under uncertainty

Valuation of Decision Flexibility and Strategic Value in Coal Gasification Projects with the Option-To-Switch between Different Outputs

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