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A Real Options Analysis for Renewable Energy Investment Decisions under China Carbon Trading Market

Author

Listed:
  • Yanbin Li

    (School of Economics and Management, North China Electric Power University, Beijing 102202, China)

  • Min Wu

    (School of Economics and Management, North China Electric Power University, Beijing 102202, China)

  • Zhen Li

    (School of Economics and Management, North China Electric Power University, Beijing 102202, China)

Abstract

Under the carbon trading mechanism, renewable energy projects can gain additional benefits through Chinese Certified Emission Reduction transactions. Due to the uncertainty of carbon trading system, carbon prices will fluctuate randomly, which will affect the investment timing of renewable energy projects. Thus, the value of the option will be generated. Therefore, renewable energy power generation project investment has the right of option. However, the traditional investment decision-making method can no longer meet the requirements of renewable energy investment in the current stage. In this paper, a real option model considering carbon price fluctuation is proposed as a tool for renewable energy investment. Considering optimal investment timing and carbon price, the model introduces a carbon price fluctuation as part of the optimization, studies the flexibility of enterprises’ delayed investment under the fluctuation of carbon price. A case study is carried out to verify the effectiveness of the proposed real option model by selecting a wind farm in North China. The model is expected to help investors to assess the volatility and risk of renewable energy projects more accurately, and help investors to make a complete plan for the project investment, thus promoting the efficient allocation of resources in the energy industry.

Suggested Citation

  • Yanbin Li & Min Wu & Zhen Li, 2018. "A Real Options Analysis for Renewable Energy Investment Decisions under China Carbon Trading Market," Energies, MDPI, vol. 11(7), pages 1-10, July.
    • Handle: RePEc:gam:jeners:v:11:y:2018:i:7:p:1817-:d:157448
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    References listed on IDEAS

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    Cited by:

    1. Barbara Glensk & Reinhard Madlener, 2019. "Energiewende @ Risk: On the Continuation of Renewable Power Generation at the End of Public Policy Support," Energies, MDPI, vol. 12(19), pages 1-25, September.
    2. Cheng Nie & Yue Wang & Wanjun Lei & Tian Li & Shiyuan Yin, 2018. "Modeling and Enhanced Error-Free Current Control Strategy for Inverter with Virtual Resistor Damping," Energies, MDPI, vol. 11(10), pages 1-15, September.
    3. Rong, Jing & Guo, Quan & Chen, Shikun & Hao, Jinghui, 2025. "Does carbon emission trading policy improve agricultural energy transition? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1670-1689.
    4. Ning Yan & Shenhai Huang & Yan Chen & Daini Zhang & Qin Xu & Xiangyi Yang & Shiyan Wen, 2025. "The Impact of Carbon Trading Market on the Layout Decision of Renewable Energy Investment—Theoretical Modeling and Case Study," Energies, MDPI, vol. 18(15), pages 1-30, July.
    5. Xuping Cao & Aroskar Rajarshi & Juxi Tong, 2018. "Technology Evolution of China’s Export of Renewable Energy Products," IJERPH, MDPI, vol. 15(8), pages 1-14, August.
    6. Wen-Hsien Tsai, 2019. "Modeling and Simulation of Carbon Emission-Related Issues," Energies, MDPI, vol. 12(13), pages 1-8, July.
    7. 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.
    8. Yue Qi & Yue Wang, 2023. "Innovating and Pricing Carbon-Offset Options of Asian Styles on the Basis of Jump Diffusions and Fractal Brownian Motions," Mathematics, MDPI, vol. 11(16), pages 1-22, August.
    9. Andreolli, Francesca & D’Alpaos, Chiara & Moretto, Michele, 2022. "Valuing investments in domestic PV-Battery Systems under uncertainty," Energy Economics, Elsevier, vol. 106(C).
    10. Chao Zhou & Dongyu Liu & Pengfei Zhou & Jie Luo & Serhat Yuksel & Hasan Dincer, 2020. "Hybrid Predictive Decision-Making Approach to Emission Reduction Policies for Sustainable Energy Industry," Energies, MDPI, vol. 13(9), pages 1-21, May.

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