Using real options model based on Monte-Carlo Least-Squares for economic appraisal of flexibility for electricity generation with VVER-1000 in developing countries

Najafi, P.; Talebi, Saeed

doi:10.1016/j.seta.2021.101508

Cited by 9 publications

(4 citation statements)

References 23 publications

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“…By delaying the investment, investors obtain new and valuable information that minimizes the uncertainties, while improving the levels of technology maturity that provide reductions in technology risks (Ofori et al, 2021). Similar results are also expected from the investment in nuclear energy under uncertainty in electricity prices, that the higher drift rate in selling electricity prices increases the value of the option to defer as this limits the risk and leads to a higher probability of accumulative profits (Najafi & Talebi, 2021). In this study, the value of real options is based on the flexibility to delay the shift of a power system from fossils to more sustainable energy sources.…”

Section: Summary Of Findings and Existing Studiesmentioning

confidence: 65%

“…Literature reviews identified these uncertainties including market prices (electricity, fossil fuels, CO2), costs (capital, O&M), production and demand, learning (technology, R&D), and policies (subsidy, carbon tax, regulation) (Kim et al, 2017;Kozlova, 2017). The ROA accounts for these uncertainties to make flexible managerial decisions such as the ability to delay investment and wait for the most favorable moment, abandon an unfavorable project; change the technology to a more profitable, and expand or reduce the project's operational scale based on the market conditions (Najafi & Talebi, 2021). Hence, this study applies the ROA and compares different sustainable energy projects considering the value of flexibility to postpone the implementation of the project based on various sources of uncertainties in energy investment.…”

Section: Methodsmentioning

confidence: 99%

“…On the other hand, Zhang et al (2022) complicated these by combining real options with portfolio optimization to evaluate the optimal renewable energy investment portfolio strategy, investment value, and conditional value at risk under uncertain changes in electricity price, fuel price, carbon price, investment cost, and renewable energy certificate price. Meanwhile, Najafi and Talebi (2021) considered the uncertainties in market price and operations and maintenance (O&M) cost in appraising the flexibility of nuclear energy generation in developing countries.…”

Section: Introductionmentioning

confidence: 99%

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Decision Support for Investments in Sustainable Energy Sources Under Uncertainties

Batac

Collera

Villanueva³

et al. 2022

Int. J. Renew. Energy Dev.

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Investment in sustainable energy sources is one of the climate mitigation strategies that can significantly reduce greenhouse gas emissions in the energy sector. However, in developing countries, investment is challenged by high capital expenditures and several uncertainties. This paper aims to provide decision support for investment in sustainable energy projects by evaluating the comparative attractiveness of shifting energy sources from fossil fuels to renewables and nuclear. Applying the real options approach (ROA), we calculate the value of the flexibility to postpone the investment decision and identify the optimal timing (described here as the trigger price of coal) for shifting to sustainable energy sources. We consider various uncertainties, such as coal and electricity prices, negative externality of using fossil fuels, and the risk of a nuclear accident, which are modelled using geometric Brownian motion, Poisson process, and Bernoulli probability. Applying the ROA model in the case of the Philippines, results find that investing in sustainable energy is a better option than continuing to use coal for electricity generation. However, contrary to conventional option valuation result that waiting is a better strategy, we found that delaying or postponing the investment decisions may lead to possible opportunity losses. Among the available sustainable energy sources, geothermal is the most attractive with trigger prices of coal equal to USD 49.95/ton, followed by nuclear (USD 58.55/ton), wind (USD 69.48/ton), solar photovoltaic (USD 72.04/ton), and hydropower (USD 111.14/ton). We find that the occurrence of jump (extreme) prices of coal, raising the current feed-in-tariff, and considering negative externalities can decrease the trigger prices, which favor investments in sustainable energies. Moreover, the risk of a nuclear disaster favors investment in renewable energy sources over nuclear due to the huge damage costs once an accident occurs. Results provide bases for policy recommendations toward achieving a more secure and sustainable energy sector for developing countries that are too dependent on imported fossil fuels.

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Section: Summary Of Findings and Existing Studiesmentioning

confidence: 65%

Section: Methodsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Decision Support for Investments in Sustainable Energy Sources Under Uncertainties

Batac

Collera

Villanueva³

et al. 2022

Int. J. Renew. Energy Dev.

View full text Add to dashboard Cite

show abstract

“…Meng et al [18] took renewable energy enterprises as research objects and studied the impact of carbon subsidies and carbon taxes on enterprise investment efficiency from the perspective of property heterogeneity. From the perspective of low-carbon investment timing, Najafi et al [19] established a real option valuation framework based on Monte Carlo simulation and adaptive backward dynamic least squares programming and studied the influence of volatility and drift rate of electricity market price on the optimal investment timing and exercise value of extended options. Liu et al [20] developed a differential game model to investigate the impact of the relationship between fresh food suppliers and retailers on R&D investments in pre-cooling and carbon reduction technologies.…”

Section: Literature Reviewmentioning

confidence: 99%

Study on Low-Carbon Technology Investment Strategies for High Energy-Consuming Enterprises under the Health Co-Benefits of Carbon Emission Reduction

Liu

Sun

2023

Sustainability

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The excessive use of fossil energy has led to a yearly increase in carbon dioxide and atmospheric pollutant emissions, and climate change has become increasingly prominent, seriously affecting people’s daily lives and physical and mental health. According to statistics, rising temperatures and extreme weather phenomena due to climate change have led to a 68% increase in heat-related deaths today compared to the period between 2000 and 2004, and a 61% increase in the number of days humans face high fire risks in the same period. Currently, in order to achieve synergistic economic and environmental development and enhance the health co-benefits of carbon emission reduction, it is urgent for high-energy-consuming enterprises to make sound low-carbon technology investment decisions. Therefore, in this paper, under the carbon quota and trading policy and carbon tax policy, and considering the existence of low-carbon preferences of consumers, the financial constraints of upstream high energy-consuming enterprises and sufficient funds of downstream retailers, a low-carbon technology investment decision model under intra-supply chain financing is constructed using Stackelberg game theory. Moreover, by applying the inverse induction method, we solve the optimal decision of low-carbon technology investment with three different subsidy methods: no subsidy, cost subsidy and product subsidy. Finally, the validity of the model is verified by numerical simulation, and the effects of different influencing factors on low-carbon technology investment are analyzed. The results show that: (1) the reasonable formulation of carbon trading price, carbon tax rate, cost subsidy ratio and product subsidy coefficient are important factors to promote enterprises’ low-carbon technology investment; (2) the improvement of consumers’ low-carbon preference level and the reduction in repayment interest rate can promote enterprises’ investment; (3) compared with no subsidy, cost subsidy and product subsidy can effectively improve enterprises’ low-carbon technology investment enthusiasm, and the effect of product subsidy is better than that of cost subsidy. The effect of product subsidies is better than that of cost subsidies. This paper aims to provide suggestions for the government to refine low-carbon technology investment incentive policies and for enterprises to optimize low-carbon technology investment decisions, so as to enhance the healthy co-benefits of carbon emission reduction and achieve green and sustainable economic development.

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A Combination of NLP and Monte Carlo Technique to Improve Wind Investment Decisions

Di Bari,

Grilli,

Santoro

et al. 2024

Mathematical and Statistical Methods for Actuarial Sciences and Finance

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Using real options model based on Monte-Carlo Least-Squares for economic appraisal of flexibility for electricity generation with VVER-1000 in developing countries

Cited by 9 publications

References 23 publications

Decision Support for Investments in Sustainable Energy Sources Under Uncertainties

Decision Support for Investments in Sustainable Energy Sources Under Uncertainties

Study on Low-Carbon Technology Investment Strategies for High Energy-Consuming Enterprises under the Health Co-Benefits of Carbon Emission Reduction

A Combination of NLP and Monte Carlo Technique to Improve Wind Investment Decisions

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