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Compound real options valuation of renewable energy projects: The case of a wind farm in Serbia

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  • Loncar, Dragan
  • Milovanovic, Ivan
  • Rakic, Biljana
  • Radjenovic, Tamara

Abstract

Renewable energy sources have become a very important issue due to environmental and sustainability concerns. In addition, most renewable energy electricity generation (RES-E) projects are characterized by considerable uncertainty and sequential decision-making. These projects’ net present value (NPV) is very often close to zero, which renders them a good candidate for the application of real options valuation methodology of investment project appraisal.

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  • Loncar, Dragan & Milovanovic, Ivan & Rakic, Biljana & Radjenovic, Tamara, 2017. "Compound real options valuation of renewable energy projects: The case of a wind farm in Serbia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 75(C), pages 354-367.
    • Handle: RePEc:eee:rensus:v:75:y:2017:i:c:p:354-367
    DOI: 10.1016/j.rser.2016.11.001
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    5. Locatelli, Giorgio & Mancini, Mauro & Lotti, Giovanni, 2020. "A simple-to-implement real options method for the energy sector," Energy, Elsevier, vol. 197(C).
    6. Kyeongseok Kim & Ji-Sung Kim, 2018. "Economic Assessment of Flood Control Facilities under Climate Uncertainty: A Case of Nakdong River, South Korea," Sustainability, MDPI, vol. 10(2), pages 1-17, January.
    7. Jiangang Shi & Kaifeng Duan & Shiping Wen & Rui Zhang, 2019. "Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective," Sustainability, MDPI, vol. 11(7), pages 1-18, March.
    8. Michele Bufalo & Antonio Di Bari & Giovanni Villani, 2022. "Multi-stage real option evaluation with double barrier under stochastic volatility and interest rate," Annals of Finance, Springer, vol. 18(2), pages 247-266, June.
    9. Moon, Yongma & Baran, Mesut, 2018. "Economic analysis of a residential PV system from the timing perspective: A real option model," Renewable Energy, Elsevier, vol. 125(C), pages 783-795.
    10. Fernández-González, Raquel & Pérez-Vas, Raisa & Puime-Guillén, Félix, 2022. "Small companies facing the mobility policy in Spain: Is it profitable to remain in the market?," Transport Policy, Elsevier, vol. 128(C), pages 113-120.
    11. Sarah Barrows & Kendall Mongird & Brian Naughton & Rachid Darbali-Zamora, 2021. "Valuation of Distributed Wind in an Isolated System," Energies, MDPI, vol. 14(21), pages 1-20, October.
    12. Herui Cui & Tian Zhao & Ruirui Wu, 2018. "An Investment Feasibility Analysis of CCS Retrofit Based on a Two-Stage Compound Real Options Model," Energies, MDPI, vol. 11(7), pages 1-19, July.
    13. Gazheli, Ardjan & van den Bergh, Jeroen, 2018. "Real options analysis of investment in solar vs. wind energy: Diversification strategies under uncertain prices and costs," Renewable and Sustainable Energy Reviews, Elsevier, vol. 82(P3), pages 2693-2704.
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    More about this item

    Keywords

    Renewable energy sources; Electricity generation projects; Wind farm; Binomial tree; Capacity factor; Feed-in-tariffs;
    All these keywords.

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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