scholarly journals Economic Analysis of Renewable Energy Regulation in France: A Case Study for Photovoltaic Plants Based on Real Options

Energies ◽  
2020 ◽  
Vol 13 (11) ◽  
pp. 2760 ◽  
Author(s):  
José Balibrea-Iniesta
Keyword(s):  
Real Options ◽  
Electricity Market ◽  
Large Scale ◽  
Net Present Value ◽  
Energy Regulation ◽  
Real Options Theory ◽  
Put Option ◽  
Public Subsidies ◽  
The One ◽  
Photovoltaic Plants

In this work, a novel methodology based on the real options theory has been developed for the evaluation of photovoltaic energy projects with a capacity greater than 100 KW in France. French legislation that regulates these types of projects presents two real options: on the one hand, the producer has a put option that consists of choosing between a Feed-in Tariff system and electricity market sale prices every year, and this put option coincides with public subsidies granted by the French Administration. On the other hand, the French Administration has a call option that provides a benefit to the public sector. This option supposes a limit on the subsidized production of electricity and reduces the value of the project to the promoter. The value of the put option is 4.28 € per MWh generated. The Extended Net Present Value has a value of −5.26 million Euros. The breakeven point of the project is achieved with an increase of 59% in the regulated rate. This means that the French Administration must increase the value of public subsidies if it wants to develop large-scale projects.

Maintenance Decisions for Offshore Structures Using Real Options Theory

2004 ◽  
Author(s):  
Ernesto Heredia-Zavoni ◽  
Sandra Santa-Cruz
Keyword(s):  
Decision Making ◽  
Real Options ◽  
Cash Flow ◽  
Net Present Value ◽  
Offshore Structures ◽  
Present Value ◽  
Real Options Theory ◽  
Financial Variables ◽  
Maintenance Decisions ◽  
Options Theory

Real Options methods are currently used to assess investment projects considering: (1) the decision options that one can have along the development of the project, such as to expand it, or reduce it, or to abandon it, or to differ it, and (2) the uncertainty in some financial variables for the assessment of the economic investment. In these two regards, Real Options methods are superior to the traditional Net Present Value method. The purpose of the present paper is to establish the basis for Real Options modeling for decision making on design, inspection, maintenance, and decommissioning of offshore structures. The use of Real Options theory is sought in order to account for: (1) uncertainties in the financial variables involved in risk assessment based on expected costs, such as the economic consequences due to failure of a system; and (2) uncertainties associated with the resistance and loading of the structure for reliability assessment. An application of Real Options Theory is given in the paper for decision making on maintenance for an offshore structure. Cash flow from oil revenue is modeled as a stochastic process. Preventive and corrective maintenance is analyzed as a critical situation where the decision maker has the option to pay the costs of maintenance in order to obtain a benefit. Expressions are derived for the estimation of the value of the maintenance option; they are based on the derivation of the Black-Scholes equation for the evaluation of financial options. It is shown that the value of such project is equal to the sum of the net cash flow of the project (as with a Net Present Value evaluation) plus the value of the maintenance option. Projects with one and two decision times along the life of the structure are formulated and analyzed. Closed form solutions are obtained for such cases. An example is given in order to illustrate the differences between maintenance decisions using the Net Present Value and the Real Options method.

A Real Options Approach to Hybrid Electric Vehicle Architecture Design for Flexibility

2016 ◽  
Author(s):  
Namwoo Kang ◽  
Alparslan Emrah Bayrak ◽  
Panos Y. Papalambros
Keyword(s):  
Real Options ◽  
Hybrid Electric Vehicle ◽  
Net Present Value ◽  
Price Volatility ◽  
Real Options Theory ◽  
Real Options Approach ◽  
Hybrid Electric ◽  
Gas Price ◽  
The Impact ◽  
Over Time

Manufacturers launch new product models at various time increments to meet changing market requirements over time. At each design period, product design and price may change. While price decisions can be made at product launching time, redesign decisions must be made in advance. Real options theory addresses such time gap decisions. This paper presents a real options approach with a binomial lattice model to determine optimal design and price decisions for hybrid electric vehicles (HEVs) that maximize expanded net present value of profit under gas price uncertainty over time. Results confirm that we can obtain changing vehicle attributes by changing gear ratios rather than the architectures themselves due to high cost of redesigning. A parametric study examines the impact of gas price volatility on option decisions and shows that larger volatility of gas price causes the change option to be selected more frequently.

Photovoltaic Power Generation Investment Decision-Making Framework Based on Real Options Theory

2013 ◽  
Vol 392 ◽  
pp. 480-483 ◽  
Author(s):  
Shuo Fang ◽  
Jun Liu ◽  
Min Liu ◽  
Zhi Zhang ◽  
Yan Hong Zhou
Keyword(s):  
Power Generation ◽  
Decision Making ◽  
Real Options ◽  
Electricity Market ◽  
Investment Decision ◽  
Real Options Theory ◽  
Photovoltaic Power ◽  
Investment Decision Making ◽  
Decision Making Framework ◽  
Options Theory

In the new electricity market environment, PV project investment faces more investment risks. For photovoltaic power generation characteristics of the project and with the integrated current research, we put forward the investment decision-making framework based on real option theory; we enrich and develop the applications of real options theory about investment decisions in the electricity, there are certain theoretical and practical significances.

Valuation of Technology-Based Companies

2014 ◽  
pp. 108-122
Author(s):  
João Zambujal-Oliveira ◽  
César Serradas
Keyword(s):  
Monte Carlo ◽  
Real Options ◽  
Cash Flow ◽  
Cash Flows ◽  
Growth Opportunities ◽  
Discounted Cash Flow ◽  
Real Options Theory ◽  
The One ◽  
Discounted Cash Flow Method ◽  
Options Theory

The cash flows of technology-based companies show high degrees of uncertainty. As traditional valuation methods can hardly capture these characteristics, they are insufficient for valuing these kinds of companies. On the contrary, real options theory can quantify the value associated with management flexibility, growth opportunities, and synergies. This chapter assesses the corporate value of a technology-based company. By gathering information from historical cash flows and using Monte Carlo simulations, the chapter generates future returns paths and primarily uses them for valuations by discounted cash flow methods. The generated volatility is subsequently used to value the measurement carried out by real options theory. The value obtained under the real options binomial approach is about 40% higher than the one obtained by the discounted cash flow method. This difference can be attributed to the value associated with uncertainty and flexibility.

scholarly journals The Valuation of Geothermal Power Projects in Indonesia Using Real Options Valuation

2018 ◽  
Vol 248 ◽  
pp. 03004
Author(s):  
Reza A. Bilqist ◽  
M. Dachyar ◽  
Farizal
Keyword(s):  
Real Options ◽  
Large Scale ◽  
Net Present Value ◽  
Production Volume ◽  
Present Value ◽  
Strategic Option ◽  
Real Options Valuation ◽  
Valuation Process ◽  
Geothermal Power ◽  
Options Valuation

Geothermal power project should be carefully evaluated, because not only the project is large-scale and high-risk, but also huge investments are needed to make the project profitable. The purpose of this study is to evaluate and analyze the present value of the geothermal power plant projects in Indonesia using net present value and real options valuation approach to obtain better project value that indicates profitable investments. Project value determined based on Net Present Value (NPV). The Monte Carlo Simulation calculated NPV based on discount rate, production volume, and operation and maintenance (O&M) cost. The risk of the project defined with 3 scenarios to obtain NPV and calculate Expected Net Present Value (ENPV). The result of this study showed Real Options Valuation obtained the highest project value indicating a higher return of the project that was previously undervalued using NPV and ENPV. Real Options Valuation approach improved the project value by incorporating scenario analysis and strategic option in the valuation process.

scholarly journals Risk Economic Viability Focusing on Energy Efficiency in Three Genotypes of Elephant Grass in the Municipality of Alegre, Brazil

2021 ◽  
Vol 13 (4) ◽  
pp. 138
Author(s):  
Wanessa Francesconi Stida ◽  
Rogério Figueiredo Daher ◽  
José Augusto de Almeida Sant’Ana ◽  
Niraldo José Ponciano ◽  
Eduardo Peres Furlani ◽  
...  
Keyword(s):  
Energy Production ◽  
Large Scale ◽  
Fossil Fuels ◽  
Net Present Value ◽  
Economic Viability ◽  
Elephant Grass ◽  
Internal Rate Of Return ◽  
Sale Price ◽  
The One

The use, on a large scale, of fossil fuels and their derivatives has devastating long-term consequences for mankind. Therefore is an urgent need to seek new alternatives for sustainable energy production. This fact is one of the great challenges to be faced by researchers worldwide. Within this context, the elephant grass has been standing out successfully in the production of biomass for energy purposes. The purpose in this study was to analyze the economic viability of biomass production of three genotypes of elephant grass for energy purposes and to identify the risk by means of the Monte Carlo simulation. The economic indicators were obtained by calculating the Net Present Value (NPV), the Internal Rate of Return (IRR), and the Profitability Index (PI). To determine the degree of uncertainty, analysis of sensitivity was applied. Results indicated viability for all genotypes, especially the Guaçú/I.Z.2, with IRR of 17.79%. Variation in sale price of grass generates a greater impact on profitability, followed by the labor and fertilization costs. The risk of failure was relatively low, with the exception of Capim Cana D’África, 38.16%. Among the three genotypes studied, the G1 genotype (Guaçú/I.Z.2) stood out as the one with the best economic viability.

scholarly journals Application of the “real options theory” method to the production systems used in dairy cattle farming

2020 ◽  
Vol 72 (6) ◽  
pp. 2288-2296
Author(s):  
D.T. Xavier ◽  
A.A.C. Peres ◽  
G.L. Almeida ◽  
C.A.B. Carvalho
Keyword(s):  
Real Options ◽  
Evaluation Method ◽  
Net Present Value ◽  
Production Systems ◽  
Significant Feature ◽  
Real Options Theory ◽  
The Real ◽  
Guinea Grass ◽  
Sorghum Silage ◽  
Options Theory

ABSTRACT The objective of this study was to analyze applications of real options theory for increasing the productivity of Mantiqueira ecotype dairy cows kept in guinea grass pastures with different sources of bulky supplementation (black oats, fodder cane, or sorghum silage), because the traditional methodologies do not consider the uncertainties related to this activity. Real options theory, an investment evaluation method, fills this gap as its most significant feature is its flexibility to act on uncertain events. Based on the results obtained for two economic indicators, the net present value and internal rate of return, and considering the production items identified in the sensitivity analysis, this study evaluated the expansion flexibility of each system using the real options theory methodology in discrete time as proposed by Copeland and Antikarov (2001). The analysis of the expansion options showed that the values of the production systems increased by 6.73%, 1.21%, and 19.49% for the systems supplemented with sorghum silage, black oats, and fodder cane, respectively. The expanded net present values were R$ 141,642.39, R$ 64,211.08, and R$ 58,013.07 for the systems that adopted bulky supplementation with black oats, fodder cane, and sorghum silage, respectively.

scholarly journals The role of the theory of real choices in the development of financial managers and their decisions in the evaluation of investment decisions

2015 ◽  
Vol 1 (3) ◽  
pp. 278
Author(s):  
Ammar Shihab Ahmed
Keyword(s):  
Real Options ◽  
Net Present Value ◽  
Investment Decisions ◽  
Cash Flows ◽  
Traditional Theory ◽  
Present Value ◽  
Real Options Theory ◽  
Capital Budget ◽  
New Variables ◽  
Future Cash Flows

According to traditional theory of the capital budget, the net present value of future cash flows of the project are discounted at an appropriate discount reflects the degree of volatility in expected future cash flows. If the net present value is positive accept the project and vice versa. And also do not show the actions that can be taken after the acceptance of the project and the commencement of work that could result in an increase or decrease of cash flows, and here highlights the shortcomings with the current environment variables that are complex, leading to a search for new methods in line with these new variables and of the theory real options to evaluate investment decisions and that gives a big role Skilled managers in making capital decisions, which is reflected in the cash flows of investment decisions and future reduction of risk, hence requiring real options theory enjoy CFOs high skills in order to maximize the company to which they belong value, so the company's skilled management is an important tributary of the success of companies that are looking for the competitive advantage that achieve the company's goals and the reduction of risk and the resulting Allatakd and of cash flows that you get as a result of the decisions of its managers.

THE APPLICATION OF REAL OPTIONS THEORY IN DEFENSE R&D PROJECTS: AN EIGHT-FOLD SEQUENTIAL COMPOUND OPTION MODEL

2011 ◽  
Vol 08 (01) ◽  
pp. 95-112
Author(s):  
WON-JOON JANG ◽  
JEONG-DONG LEE
Keyword(s):  
Real Options ◽  
Real Option ◽  
Net Present Value ◽  
Decision Makers ◽  
Policy Implications ◽  
Sensitivity Analyses ◽  
Actual Process ◽  
Real Options Theory ◽  
Real Options Valuation ◽  
Real Option Valuation

Today, despite the needs of more credible valuation models in defense research and development (R&D), defense decision makers mainly focus on previous cost and NPV-based approaches to evaluate them. Defense R&D projects should be considered as a sequential compound real option due to its relevant characteristics. This paper presents a real option valuation model with the use of an eight-fold compound option in the valuation of defense R&D projects and its illustrative application using a case study in the Republic of Korea. Compared to the traditional net present value (NPV) methods and their sensitivity analyses with value drivers, the paper shows the necessity of using real option approaches and their mindsets for defense decision makers to decide their defense R&D projects. The contribution of this paper is to present the real option framework in valuating of defense R&D projects, providing for the managerial flexibility with option mindsets. It also shows some limitations of using cost- and NPV-based approaches and presents real options valuation methods as its solution. The paper suggests some feasible defense policy implications that can be applied to the actual process of defense acquisition projects.

Using Real Options to Estimate the Pre-commercialisation Value of a Drought Tolerant Wheat Trait

2020 ◽  
Vol 25 (2) ◽  
Author(s):  
Katherine Wynn ◽  
German Spangenberg ◽  
Kevin Smith ◽  
William Wilson
Keyword(s):  
Real Options ◽  
Net Present Value ◽  
Investment Decisions ◽  
Analytical Framework ◽  
Investment Strategy ◽  
Sunk Costs ◽  
Strategy Development ◽  
Managerial Flexibility ◽  
Drought Tolerant ◽  
The One

Uncertainty, sunk investment costs and managerial flexibility means standard investment budgeting methods such as net present value are ineffective and undervalue risky investments. Real options attains a more accurate and comprehensive assessment of investments. In this study, we apply a real options analytical framework to investment decisions during the research and development (R&D) process of a drought tolerant wheat trait. The results suggest the option value for investment is positive at each R&D stage and that investors should continue to invest. Biotechnology firms should use a real options analytical framework like the one applied in this paper for investment strategy development and for investment decisions involving uncertainty, sunk costs and decision flexibility.

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