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Application of Real Options Theory to the Assessment of Public Incentives for Onshore Wind Energy Development in Spain

Author

Listed:
  • Jos Balibrea-Iniesta

    (Department of Civil Engineering, Escuela T cnica Superior De Ingenier a De Caminos, Canales Y Puertos, Polytechnic University of Cartagena, C/Ctra. De La Fuensanta, 19, Bajo B, 30012, Murcia, Spain,)

  • Antonio S nchez-Soli o

    (Department of Civil Engineering: Construction, Escuela T cnica Superior De Ingenieros De Caminos, Canales Y Puertos, Polytechnic University of Madrid, Ciudad Universitaria - 28040 Madrid, Spain)

  • Antonio Lara-Galera

    (Department of Civil Engineering: Construction, Escuela T cnica Superior De Ingenieros De Caminos, Canales Y Puertos, Polytechnic University of Madrid, Ciudad Universitaria - 28040 Madrid, Spain.)

Abstract

This paper discusses the important development of electricity production from renewable energy in Spain. The regulatory framework has played a key role in this process, particularly the 661/2007 Royal Decree of May 25. The legislation grants certain rights to promoters. These rights can be characterized as options, allowing us to utilize a signifi cant number of theoretical and empirical studies in the fi eld of fi nancial option pricing in our analysis. Insofar as these derivative assets have underlying real and non-fi nancial assets (i.e., a wind farm), the rights provided for in Royal Decree 661/2007 can be considered real options. In this paper, a method is proposed to evaluate investment projects in Spanish wind power based on the Royal Decree. The value of these projects is certainly affected by the real options contained in the Royal Decree. Finally, public aid granted by the administration for the development of renewable energies is evaluated.

Suggested Citation

  • Jos Balibrea-Iniesta & Antonio S nchez-Soli o & Antonio Lara-Galera, 2015. "Application of Real Options Theory to the Assessment of Public Incentives for Onshore Wind Energy Development in Spain," International Journal of Energy Economics and Policy, Econjournals, vol. 5(3), pages 791-800.
    • Handle: RePEc:eco:journ2:2015-03-20
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    References listed on IDEAS

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    Cited by:

    1. Kozlova, Mariia, 2017. "Real option valuation in renewable energy literature: Research focus, trends and design," Renewable and Sustainable Energy Reviews, Elsevier, vol. 80(C), pages 180-196.
    2. Balibrea-Iniesta, José & Rodríguez-Monroy, Carlos & Núñez-Guerrero, Yilsy María, 2021. "Economic analysis of the German regulation for electrical generation projects from biogas applying the theory of real options," Energy, Elsevier, vol. 231(C).
    3. Jos Maria Gon alves Nunes de Melo & Samuel Fa anha C mara & Fab ola Gomes Farias & F bio N brega de Lima & Ana Augusta Ferreira de Freitas, 2017. "The Role of Public Policy in the Development of Technological Capabilities of Companies in the Wind Energy Sector and the Impact on Social and Environmental Performance," International Journal of Energy Economics and Policy, Econjournals, vol. 7(3), pages 58-65.
    4. 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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    More about this item

    Keywords

    Real Regulatory Options; Renewable Energy; Project Valuation;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy

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