The value of delay in tidal energy development
Despite robust research, prototype development and demonstration of in-stream tidal energy devices, progress to the commercialization stage has been slow. Some of this can be attributed to a lack readiness or financing. However, when uncertainty is high, a developer may choose to delay a project until more is known. The option to delay has value for a company. This study applies the real option valuation model to an investment in a 10MW array of in-stream tidal energy conversion devices at the Fundy Ocean Research Centre for Energy (FORCE) in the Bay of Fundy, Nova Scotia, Canada. The values of investing and the option to delay are calculated. A sensitivity analysis of key drivers and scenarios with various input values to the option model are constructed to observe the impact on the 'invest versus delay' decision. The analysis suggests there is value in owning the option to develop, by leasing a FORCE berth, but waiting while uncertainty is resolved. Implications for policy-setting are discussed.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Venetsanos, Konstantinos & Angelopoulou, Penelope & Tsoutsos, Theocharis, 2002. "Renewable energy sources project appraisal under uncertainty: the case of wind energy exploitation within a changing energy market environment," Energy Policy, Elsevier, vol. 30(4), pages 293-307, March.
- Kumbaroglu, Gürkan & Madlener, Reinhard & Demirel, Mustafa, 2008.
"A real options evaluation model for the diffusion prospects of new renewable power generation technologies,"
Elsevier, vol. 30(4), pages 1882-1908, July.
- Gürkan Kumbaroglu & Reinhard Madlener & Mustafa Demirel, 2004. "A Real Options Evaluation Model for the Diffusion Prospects of New Renewable Power Generation Technologies," CEPE Working paper series 04-35, CEPE Center for Energy Policy and Economics, ETH Zurich.
- Masini, Andrea & Menichetti, Emanuela, 2012. "The impact of behavioural factors in the renewable energy investment decision making process: Conceptual framework and empirical findings," Energy Policy, Elsevier, vol. 40(C), pages 28-38.
- Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
- Bürer, Mary Jean & Wüstenhagen, Rolf, 2009. "Which renewable energy policy is a venture capitalist's best friend? Empirical evidence from a survey of international cleantech investors," Energy Policy, Elsevier, vol. 37(12), pages 4997-5006, December.
- Leete, Simeon & Xu, Jingjing & Wheeler, David, 2013. "Investment barriers and incentives for marine renewable energy in the UK: An analysis of investor preferences," Energy Policy, Elsevier, vol. 60(C), pages 866-875.
- Bøckman, Thor & Fleten, Stein-Erik & Juliussen, Erik & Langhammer, Håvard J. & Revdal, Ingemar, 2008.
"Investment timing and optimal capacity choice for small hydropower projects,"
European Journal of Operational Research,
Elsevier, vol. 190(1), pages 255-267, October.
- Bøckman, Thor & Fleten, Stein-Erik & Juliussen, Erik & Langhammer, Håvard & Revdal, Ingemar, 2006. "Investment timing and optimal capacity choice for small hydropower projects," MPRA Paper 2693, University Library of Munich, Germany, revised 31 Dec 2006.
- Kjaerland, Frode, 2007. "A real option analysis of investments in hydropower--The case of Norway," Energy Policy, Elsevier, vol. 35(11), pages 5901-5908, November.
- Andrea Masini & Emanuela Menichetti, 2013. "Investment decisions in the renewable energy sector: An analysis of non-financial drivers," Post-Print hal-00796331, HAL.
- Fernandes, Bartolomeu & Cunha, Jorge & Ferreira, Paula, 2011. "The use of real options approach in energy sector investments," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4491-4497.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
- Andrea Masini & E. Menichetti, 2012. "The impact of behavioural factors in the renewable energy investment decision making process: Conceptual framework and empirical findings," Post-Print hal-00651706, HAL.
- Wüstenhagen, Rolf & Menichetti, Emanuela, 2012. "Strategic choices for renewable energy investment: Conceptual framework and opportunities for further research," Energy Policy, Elsevier, vol. 40(C), pages 1-10.
- Masini, Andrea & Menichetti, Emanuela, 2013. "Investment decisions in the renewable energy sector: An analysis of non-financial drivers," Technological Forecasting and Social Change, Elsevier, vol. 80(3), pages 510-524.
- Linnerud, Kristin & Andersson, Ane Marte & Fleten, Stein-Erik, 2014. "Investment timing under uncertain renewable energy policy: An empirical study of small hydropower projects," Energy, Elsevier, vol. 78(C), pages 154-164.
- Santos, Lúcia & Soares, Isabel & Mendes, Carla & Ferreira, Paula, 2014. "Real Options versus Traditional Methods to assess Renewable Energy Projects," Renewable Energy, Elsevier, vol. 68(C), pages 588-594.
- Masini, Andrea & Menichetti , Emanuela, 2013. "Investment Decisions in the Renewable Energy Sector: An Analysis of Non-Financial Drivers," Les Cahiers de Recherche 976, HEC Paris.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:87:y:2015:i:c:p:438-446. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.