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Land-use Change and Solar Energy Production: A Real Option Approach

Author

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  • Ardjan Gazheli

    (Department of Economics, SLU)

  • Luca Di Corato

    (Department of Economics, SLU)

Abstract

In this paper a real option model is developed to examine the critical factors affecting the decision to lease agricultural land to a company installing a PV power plant. The leasing payment is certain while the net revenues from agriculture are uncertain. We identify the profit values at which the farmer decides to lease his plot vs. continue farming it. By applying the model to the province of Bologna (Italy), we illustrate the possible land-use change scenarios in this area. We conclude by discussing the importance of PV energy production as a source of income for farmers and its implications from a social perspective.

Suggested Citation

  • Ardjan Gazheli & Luca Di Corato, 2011. "Land-use Change and Solar Energy Production: A Real Option Approach," Working Papers 2011.90, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2011.90
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    Cited by:

    1. Xian, Hui & Colson, Gregory & Mei, Bin & Wetzstein, Michael E., 2015. "Co-firing coal with wood pellets for U.S. electricity generation: A real options analysis," Energy Policy, Elsevier, vol. 81(C), pages 106-116.
    2. repec:eee:eneeco:v:65:y:2017:i:c:p:434-441 is not listed on IDEAS
    3. Xian, Hui & Karali, Berna & Colson, Gregory & Wetzstein, Michael E., 2015. "Diesel or compressed natural gas? A real options evaluation of the U.S. natural gas boom on fuel choice for trucking fleets," Energy, Elsevier, vol. 90(P2), pages 1342-1348.
    4. repec:eee:rensus:v:80:y:2017:i:c:p:180-196 is not listed on IDEAS
    5. Mahmoud A. Eissa & Boping Tian, 2017. "Lobatto-Milstein Numerical Method in Application of Uncertainty Investment of Solar Power Projects," Energies, MDPI, Open Access Journal, vol. 10(1), pages 1-19, January.

    More about this item

    Keywords

    Land Allocation; Real Options; Renewable Energy; Solar farm; Uncertainty;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q24 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Land
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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