Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method

Autores
Pringles, Rolando Marcelo; Olsina, Fernando Gabriel; Penizzotto Bacha, Franco Victor
Año de publicación
2020
Idioma
inglés
Tipo de recurso
artículo
Estado
versión publicada
Descripción
Risk management is crucial when committing investments in electricity markets. Investment projects for the generation of electricity are capital-intensive, in large part irreversible and future performance is subject to high uncertainty. Fortunately, most power generation projects have strategic flexibility for handling uncertainty and for mitigating risks under unfavorable scenarios. Modern corporate finance recognizes Real Option analysis (ROA) as the correct way to value investment projects with these characteristics. Due to both, environmental concerns and escalation of fuel prices, electricity generation from renewable sources has grown dramatically worldwide over the last decade. Renewable investment projects share many of the features mentioned. As such, option valuation methods should be applied to estimate the monetary value of flexibility in renewable energy investments. This work presents an appropriate methodology for assessing the economic value of a photovoltaic power plant under uncertainties. ROA is applied to determine the value of delaying the investment decision while waiting for better market information that would reduce acquisition costs due to progress in solar technology. The flexibility of relocating the solar facility in the future upon the appearance of a more attractive site in terms of cost, network accessibility or regulatory policies is also valued. The problem of option valuation is solved through stochastic simulation combined with recursive approximate dynamic programming techniques. The methodology developed might be used by investors for more efficient decision-making and by regulatory agencies for designing adequate support policies that encourage investment in renewable energy generation.
Fil: Pringles, Rolando Marcelo. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; Argentina
Fil: Olsina, Fernando Gabriel. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; Argentina
Fil: Penizzotto Bacha, Franco Victor. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; Argentina
Materia
Flexibility
Uncertainty
Irreversibility
Real options
Solar energy
Monte Carlo
Nivel de accesibilidad
acceso abierto
Condiciones de uso
https://creativecommons.org/licenses/by-nc-sa/2.5/ar/
Repositorio
CONICET Digital (CONICET)
Institución
Consejo Nacional de Investigaciones Científicas y Técnicas
OAI Identificador
oai:ri.conicet.gov.ar:11336/143628
Acceder
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network_name_str CONICET Digital (CONICET)
spelling Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based methodPringles, Rolando MarceloOlsina, Fernando GabrielPenizzotto Bacha, Franco VictorFlexibilityUncertaintyIrreversibilityReal optionsSolar energyMonte Carlohttps://purl.org/becyt/ford/2.2https://purl.org/becyt/ford/2Risk management is crucial when committing investments in electricity markets. Investment projects for the generation of electricity are capital-intensive, in large part irreversible and future performance is subject to high uncertainty. Fortunately, most power generation projects have strategic flexibility for handling uncertainty and for mitigating risks under unfavorable scenarios. Modern corporate finance recognizes Real Option analysis (ROA) as the correct way to value investment projects with these characteristics. Due to both, environmental concerns and escalation of fuel prices, electricity generation from renewable sources has grown dramatically worldwide over the last decade. Renewable investment projects share many of the features mentioned. As such, option valuation methods should be applied to estimate the monetary value of flexibility in renewable energy investments. This work presents an appropriate methodology for assessing the economic value of a photovoltaic power plant under uncertainties. ROA is applied to determine the value of delaying the investment decision while waiting for better market information that would reduce acquisition costs due to progress in solar technology. The flexibility of relocating the solar facility in the future upon the appearance of a more attractive site in terms of cost, network accessibility or regulatory policies is also valued. The problem of option valuation is solved through stochastic simulation combined with recursive approximate dynamic programming techniques. The methodology developed might be used by investors for more efficient decision-making and by regulatory agencies for designing adequate support policies that encourage investment in renewable energy generation.Fil: Pringles, Rolando Marcelo. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; ArgentinaFil: Olsina, Fernando Gabriel. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; ArgentinaFil: Penizzotto Bacha, Franco Victor. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; ArgentinaPergamon-Elsevier Science Ltd2020-05info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionhttp://purl.org/coar/resource_type/c_6501info:ar-repo/semantics/articuloapplication/pdfapplication/pdfapplication/pdfhttp://hdl.handle.net/11336/143628Pringles, Rolando Marcelo; Olsina, Fernando Gabriel; Penizzotto Bacha, Franco Victor; Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method; Pergamon-Elsevier Science Ltd; Renewable Energy; 151; 5-2020; 846-8640960-1481CONICET DigitalCONICETenginfo:eu-repo/semantics/altIdentifier/url/https://linkinghub.elsevier.com/retrieve/pii/S0960148119317756info:eu-repo/semantics/altIdentifier/doi/10.1016/j.renene.2019.11.082info:eu-repo/semantics/openAccesshttps://creativecommons.org/licenses/by-nc-sa/2.5/ar/reponame:CONICET Digital (CONICET)instname:Consejo Nacional de Investigaciones Científicas y Técnicas2025-09-03T10:07:18Zoai:ri.conicet.gov.ar:11336/143628instacron:CONICETInstitucionalhttp://ri.conicet.gov.ar/Organismo científico-tecnológicoNo correspondehttp://ri.conicet.gov.ar/oai/requestdasensio@conicet.gov.ar; lcarlino@conicet.gov.arArgentinaNo correspondeNo correspondeNo correspondeopendoar:34982025-09-03 10:07:18.482CONICET Digital (CONICET) - Consejo Nacional de Investigaciones Científicas y Técnicasfalse
dc.title.none.fl_str_mv Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method
title Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method
spellingShingle Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method
Pringles, Rolando Marcelo
Flexibility
Uncertainty
Irreversibility
Real options
Solar energy
Monte Carlo
title_short Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method
title_full Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method
title_fullStr Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method
title_full_unstemmed Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method
title_sort Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method
dc.creator.none.fl_str_mv Pringles, Rolando Marcelo
Olsina, Fernando Gabriel
Penizzotto Bacha, Franco Victor
author Pringles, Rolando Marcelo
author_facet Pringles, Rolando Marcelo
Olsina, Fernando Gabriel
Penizzotto Bacha, Franco Victor
author_role author
author2 Olsina, Fernando Gabriel
Penizzotto Bacha, Franco Victor
author2_role author
author
dc.subject.none.fl_str_mv Flexibility
Uncertainty
Irreversibility
Real options
Solar energy
Monte Carlo
topic Flexibility
Uncertainty
Irreversibility
Real options
Solar energy
Monte Carlo
purl_subject.fl_str_mv https://purl.org/becyt/ford/2.2
https://purl.org/becyt/ford/2
dc.description.none.fl_txt_mv Risk management is crucial when committing investments in electricity markets. Investment projects for the generation of electricity are capital-intensive, in large part irreversible and future performance is subject to high uncertainty. Fortunately, most power generation projects have strategic flexibility for handling uncertainty and for mitigating risks under unfavorable scenarios. Modern corporate finance recognizes Real Option analysis (ROA) as the correct way to value investment projects with these characteristics. Due to both, environmental concerns and escalation of fuel prices, electricity generation from renewable sources has grown dramatically worldwide over the last decade. Renewable investment projects share many of the features mentioned. As such, option valuation methods should be applied to estimate the monetary value of flexibility in renewable energy investments. This work presents an appropriate methodology for assessing the economic value of a photovoltaic power plant under uncertainties. ROA is applied to determine the value of delaying the investment decision while waiting for better market information that would reduce acquisition costs due to progress in solar technology. The flexibility of relocating the solar facility in the future upon the appearance of a more attractive site in terms of cost, network accessibility or regulatory policies is also valued. The problem of option valuation is solved through stochastic simulation combined with recursive approximate dynamic programming techniques. The methodology developed might be used by investors for more efficient decision-making and by regulatory agencies for designing adequate support policies that encourage investment in renewable energy generation.
Fil: Pringles, Rolando Marcelo. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; Argentina
Fil: Olsina, Fernando Gabriel. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; Argentina
Fil: Penizzotto Bacha, Franco Victor. Consejo Nacional de Investigaciones Científicas y Técnicas. Centro Científico Tecnológico Conicet - San Juan. Instituto de Energía Eléctrica. Universidad Nacional de San Juan. Facultad de Ingeniería. Instituto de Energía Eléctrica; Argentina
description Risk management is crucial when committing investments in electricity markets. Investment projects for the generation of electricity are capital-intensive, in large part irreversible and future performance is subject to high uncertainty. Fortunately, most power generation projects have strategic flexibility for handling uncertainty and for mitigating risks under unfavorable scenarios. Modern corporate finance recognizes Real Option analysis (ROA) as the correct way to value investment projects with these characteristics. Due to both, environmental concerns and escalation of fuel prices, electricity generation from renewable sources has grown dramatically worldwide over the last decade. Renewable investment projects share many of the features mentioned. As such, option valuation methods should be applied to estimate the monetary value of flexibility in renewable energy investments. This work presents an appropriate methodology for assessing the economic value of a photovoltaic power plant under uncertainties. ROA is applied to determine the value of delaying the investment decision while waiting for better market information that would reduce acquisition costs due to progress in solar technology. The flexibility of relocating the solar facility in the future upon the appearance of a more attractive site in terms of cost, network accessibility or regulatory policies is also valued. The problem of option valuation is solved through stochastic simulation combined with recursive approximate dynamic programming techniques. The methodology developed might be used by investors for more efficient decision-making and by regulatory agencies for designing adequate support policies that encourage investment in renewable energy generation.
publishDate 2020
dc.date.none.fl_str_mv 2020-05
dc.type.none.fl_str_mv info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
http://purl.org/coar/resource_type/c_6501
info:ar-repo/semantics/articulo
format article
status_str publishedVersion
dc.identifier.none.fl_str_mv http://hdl.handle.net/11336/143628
Pringles, Rolando Marcelo; Olsina, Fernando Gabriel; Penizzotto Bacha, Franco Victor; Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method; Pergamon-Elsevier Science Ltd; Renewable Energy; 151; 5-2020; 846-864
0960-1481
CONICET Digital
CONICET
url http://hdl.handle.net/11336/143628
identifier_str_mv Pringles, Rolando Marcelo; Olsina, Fernando Gabriel; Penizzotto Bacha, Franco Victor; Valuation of defer and relocation options in photovoltaic generation investments by a stochastic simulation-based method; Pergamon-Elsevier Science Ltd; Renewable Energy; 151; 5-2020; 846-864
0960-1481
CONICET Digital
CONICET
dc.language.none.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv info:eu-repo/semantics/altIdentifier/url/https://linkinghub.elsevier.com/retrieve/pii/S0960148119317756
info:eu-repo/semantics/altIdentifier/doi/10.1016/j.renene.2019.11.082
dc.rights.none.fl_str_mv info:eu-repo/semantics/openAccess
https://creativecommons.org/licenses/by-nc-sa/2.5/ar/
eu_rights_str_mv openAccess
rights_invalid_str_mv https://creativecommons.org/licenses/by-nc-sa/2.5/ar/
dc.format.none.fl_str_mv application/pdf
application/pdf
application/pdf
dc.publisher.none.fl_str_mv Pergamon-Elsevier Science Ltd
publisher.none.fl_str_mv Pergamon-Elsevier Science Ltd
dc.source.none.fl_str_mv reponame:CONICET Digital (CONICET)
instname:Consejo Nacional de Investigaciones Científicas y Técnicas
reponame_str CONICET Digital (CONICET)
collection CONICET Digital (CONICET)
instname_str Consejo Nacional de Investigaciones Científicas y Técnicas
repository.name.fl_str_mv CONICET Digital (CONICET) - Consejo Nacional de Investigaciones Científicas y Técnicas
repository.mail.fl_str_mv dasensio@conicet.gov.ar; lcarlino@conicet.gov.ar
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score 13.13397

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