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No real option for solar in Ireland: A real option valuation of utility scale solar investment in Ireland

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  • Assereto, Martina
  • Byrne, Julie

Abstract

The Irish Government recently unveiled plans to have 70% of electricity in the state generated from renewable energy sources by 2030. Currently very little electricity is generated by solar photovoltaic in Ireland. In this study, a real options framework is applied to assess the economic feasibility of utility-scale solar in Ireland. Initially, electricity prices are identified as the main source of uncertainty and the Least Square Monte Carlo method is used to price the real option. The findings are that, in the absence of comprehensive policy support, large-scale investment in solar in Ireland is not commercially viable and that, where the real option has value, the optimal strategy is to defer investment. Sensitivity analysis shows that the results are robust and the analysis allows investors to make an informed bid to the newly introduced Renewable Electricity Support Scheme (RESS). When policy support is introduced, a large real option value is obtained, and utility scale solar investment is profitable. The implications are that solar-specific policy supports may work better than policies that include all renewable technologies because the dominance of onshore wind energy in Ireland may price other renewable sources out.

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  • Assereto, Martina & Byrne, Julie, 2021. "No real option for solar in Ireland: A real option valuation of utility scale solar investment in Ireland," Renewable and Sustainable Energy Reviews, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:rensus:v:143:y:2021:i:c:s1364032121001866
    DOI: 10.1016/j.rser.2021.110892
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    Cited by:

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    4. Bangjun, Wang & Feng, Zhaolei & Feng, Ji & Yu, Pan & Cui, Linyu, 2022. "Decision making on investments in photovoltaic power generation projects based on renewable portfolio standard: Perspective of real option," Renewable Energy, Elsevier, vol. 189(C), pages 1033-1045.
    5. Yang, Changhui & Jiang, Qi & Cui, Yangyu & He, Lijun, 2023. "Photovoltaic project investment based on the real options method: An analysis of the East China power grid region," Utilities Policy, Elsevier, vol. 80(C).
    6. Mosquera-López, Stephania & Uribe, Jorge M., 2022. "Pricing the risk due to weather conditions in small variable renewable energy projects," Applied Energy, Elsevier, vol. 322(C).
    7. Mombello, Bruno & Olsina, Fernando & Pringles, Rolando, 2023. "Valuing photovoltaic power plants by compound real options," Renewable Energy, Elsevier, vol. 216(C).
    8. Àlex Alonso-Travesset & Diederik Coppitters & Helena Martín & Jordi de la Hoz, 2023. "Economic and Regulatory Uncertainty in Renewable Energy System Design: A Review," Energies, MDPI, vol. 16(2), pages 1-30, January.

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