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Valuing Plug-In Hybrid Electric Vehicles' Battery Capacity Using a Real Options Framework

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  • Derek M. Lemoine

Abstract

Plug-in hybrid electric vehicles (PHEVs) enable their drivers to choose whether to use electricity or gasoline, but this fuel flexibility benefit requires the purchase of additional battery capacity relative to most other vehicles. We value the fuel flexibility of PHEVs by representing the purchase of the battery as the purchase of a strip of call options on the price of transportation. We use a Kalman filter to obtain maximum likelihood estimates for three gasoline price models applied to a U.S. municipal market. We find that using a real options approach instead of a discounted cash flow analysis does not raise the retail price at which the battery pays for itself by more than $50/kWh (or by more than 15%). A discounted cash flow approach often provides a good approximation for PHEV value in our application, but real options approaches to valuing PHEVsÕ battery capacity or role in climate policy may be crucial for other analyses.

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Bibliographic Info

Article provided by International Association for Energy Economics in its journal The Energy Journal.

Volume (Year): Volume 31 (2010)
Issue (Month): Number 2 ()
Pages: 113-144

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Handle: RePEc:aen:journl:2010v31-02-a05

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Cited by:
  1. Farrell, Niall & Devine, Mel & Lee, William & Gleeson, James & Lyons, Seán, 2013. "Specifying An Efficient Renewable Energy Feed-in Tariff," MPRA Paper 49777, University Library of Munich, Germany.
  2. Shiau, Ching-Shin Norman & Samaras, Constantine & Hauffe, Richard & Michalek, Jeremy J., 2009. "Impact of battery weight and charging patterns on the economic and environmental benefits of plug-in hybrid vehicles," Energy Policy, Elsevier, vol. 37(7), pages 2653-2663, July.

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