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Optimal investment decision for photovoltaic projects in China: a real options method

Author

Listed:
  • Xing Zhu

    (Anhui Agricultural University)

  • Baoyu Liao

    (Hefei University of Technology
    Ministry of Education)

Abstract

In an uncertain environment, it is important to investigate whether to postpone, abandon or immediately invest in photovoltaic (PV) projects. This paper applies a real options model to explore the optimal investment decision for investors and the government’s optimal incentive strategy in China’s distributed PV market. The uncertainties of feed-in tariffs (FIT) and investment costs are included in this study as critical factors affecting the options value of PV projects. Multiple scenarios are designed from different dimensions, including various subsidy durations, different resource areas, and distinct regulatory policies. The results show that not only the current FIT and investment cost affect the investment choice, but also the potential change trend of FIT and investment cost affect the investor’s preference. The results also reveal that appropriate FIT regulation can effectively induce investors who abandon investment to choose to delay investment, and significantly shorten the delay time. These conclusions can provide valuable insights for investors to optimize investment decisions.

Suggested Citation

  • Xing Zhu & Baoyu Liao, 2023. "Optimal investment decision for photovoltaic projects in China: a real options method," Journal of Combinatorial Optimization, Springer, vol. 46(5), pages 1-26, December.
    • Handle: RePEc:spr:jcomop:v:46:y:2023:i:5:d:10.1007_s10878-023-01096-5
    DOI: 10.1007/s10878-023-01096-5
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