Uncertainty, Irreversibility, and Investment in Second-Generation Biofuels

McCarty, Tanner; Sesmero, Juan

doi:10.1007/s12155-014-9549-y

Cited by 18 publications

(5 citation statements)

References 32 publications

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“…This suggests that there is a close relationship between the price of fossil transportation fuels and the profit of biofuel plant. The market price of fossil fuel is often modeled as a geometric Brownian motion, and the profit rate of a biofuel plant is described as a linear function of the fossil fuel price [7]. Moreover, previous research supports that the market price of biofuel follows a geometric Brownian motion [5,13].…”

Section: Modelmentioning

confidence: 99%

“…Real options approach is an appropriate framework to analyze the investment and disinvestment opportunities in biofuels. McCarty and Sesmero [7] analyzes the value of investment options in secondgeneration biofuels. The research shows the effect of price risk and irreversibility on the value of investment in a corn stover-based cellulosic biofuel plant.…”

Section: Introductionmentioning

confidence: 99%

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Effect of Investment and Disinvestment Delay in Biofuels

Kim

Deshmukh²

2018

IJROS

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This research studies the strategic level decision-making in the biofuel industry by considering the effect of investment and disinvestment delay. Under uncertain environments, the delay causes additional risk exposure to decision makers, and the optimal decision reflects the effect of delay. This research provides the concise and comprehensive profile of the optimal investment and disinvestment policy by taking investment and disinvestment delay into consideration. The results show that the trend of fuel price plays a crucial role to determine the effect of delay. If the trend is favorable to the alternative biofuel plant, longer exercise delays provide the decision makers an incentive to act more quickly, and shorter delays provide an opposite incentive. By applying the suggested model to the bioenergy investments cases in the state of Georgia, the United States, we provide managerial insights for the strategic decision makers in the biofuel industry.

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Section: Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Effect of Investment and Disinvestment Delay in Biofuels

Kim

Deshmukh²

2018

IJROS

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“…However, it is not only policy support that is uncertain, but also other factors which can result in postponed investment, such as future energy market prices (Li et al, 2015). The future market uncertainties can result in that a significantly higher biofuel selling price is required, compared to the breakeven biofuel selling price, for the investment to be economically rational according to real options theory (McCarty and Sesmero, 2015). This can partly be mitigated with a flexible production strategy, which can result in improved economic performance due to uncertainties in biofuel selling price (Ghoddusi, 2017).…”

Section: Introductionmentioning

confidence: 99%

We need stable, long-term policy support! - evaluating the economic rationale behind the prevalent investor lament for forest-based biofuel production

Zetterholm¹,

Mossberg²,

Jafri³

et al. 2021

Preprint

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Uncertain and unstable policy support has often been claimed to be a major cause of the slower than expected deployment of technologies for production of advanced biofuels. We investigate the economic rationale of this claim using a real options framework incorporating uncertainties regarding energy prices, investment costs, and prevalence of policy support, which was linked to the greenhouse gas (GHG) performance of the produced biofuel. Six industrially relevant forest-based technologies for production of drop-in biofuels were evaluated. The technologies were integrated with a pulp mill and an oil refinery and are at different stages of their technical development. The results show a limited economic rationale behind the claim that policy uncertainties are a major source for the stalled deploymen. Rather, it is mainly related to the uncertainties regarding investment costs and future energy prices, resulting in technologies with lower sensitivity with respect to these uncertainties have a larger chance of becoming commercially relevant investment options. If policy support is intended to promote investment in technologies with high GHG performance, it must be directed specifically to these technologies, otherwise, it is more beneficial to invest in technologies with more favourable conditions for investment and operational costs, but lower GHG performance.

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“…Other models have focused on environmental uncertainties (see [29]). In addition, McCarty and Sesmero [30] considered the importance of price risk for investment in a biofuel plant under an uncertain product price. Unfortunately, the inclusion of uncertainties leads to more complex problems and therefore larger CPU times [31].…”

Section: Introductionmentioning

confidence: 99%

Financial Risk Assessment and Optimal Planning of Biofuels Supply Chains under Uncertainty

et al. 2016

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Biofuels provide an attractive alternative for satisfying energy demands in a more sustainable way than fossil fuels. To establish a biorefinery, an optimal plan must be implemented for the entire associated supply chain, covering such aspects as selection of feedstocks, location, and capacity of biorefineries, selection of processing technologies, production amounts and transportation flows. In this context, there are several parameters, including the availability of biomass, product demand, and product prices, which are difficult to predict because they might change drastically over the different seasons of the year as well as across years. To address this challenge, this work presents a mathematical programming model for the optimal planning of a distributed system of biorefineries that considers explicitly the uncertainty associated with the supply chain operation as well as the associated risk. The potential of the proposed approach is demonstrated through its application to the production of biofuels in Mexico, considering multiple raw materials and products.

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Uncertainty, Irreversibility, and Investment in Second-Generation Biofuels

Cited by 18 publications

References 32 publications

Effect of Investment and Disinvestment Delay in Biofuels

Effect of Investment and Disinvestment Delay in Biofuels

We need stable, long-term policy support! - evaluating the economic rationale behind the prevalent investor lament for forest-based biofuel production

Financial Risk Assessment and Optimal Planning of Biofuels Supply Chains under Uncertainty

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