Wind power generation: A review and a research agenda

Real Options in Operations Research: A Review

Real Options versus Traditional Methods to assess Renewable Energy Projects

In light of intensive development of the renewable energy (RE) sector, a growing number of academic papers address the complexity of RE investment planning and valuation. To take account of the high-risk profile and irreversibility of RE investments, researchers have resorted to sophisticated real options (RO) approaches that enable flexibility to be incorporated into project design in the face of an uncertain environment. The variety of different frameworks and models adopted as well as a lack of aggregated analysis of the field suggest a need for a critical review of RO methodology and design in RE assessment. This study describes the research focus, trends and design found in contemporary academic literature devoted to RE valuation with a RO approach. Particular attention is given to RO in project and policy design. The results give a comprehensive picture of existing research on the topic, thus providing researchers with a solid foundation for further study and indications of directions for future development. Furthermore, the findings provide policymakers and project planners with valuable insights into key aspects of RE project and policy design.

Real option valuation in renewable energy literature: Research focus, trends and design

This paper aims at serving as a critical analysis of Real Options (RO) methodologies that have so far been applied to the flexible evaluation of smart grid developments and as a practical guide to understanding the benefits but more importantly the limitations of RO methodologies. Hence, future research could focus on developing more practical RO tools for application to the energy industry, thus making the utilization of powerful “real options thinking” for decision making under uncertainty more widespread. This is particularly important for applications in low carbon power and energy systems with increasing renewable and sustainable energy resources, given the different types of uncertainty they are facing in the transition towards a truly Smart Grid. In order to do so, and based on an extensive relevant literature review, the analogies with financial options are first presented, with various assumptions and their validity being clearly discussed in order to understand if, when, and how specific methods can be applied. It is then argued how option theory is in most cases not directly applicable to investment in energy systems but requires the consideration of their physical characteristics. The paper finally gives recommendations for building practical RO approaches to energy system (and potentially all engineering) project investments under uncertainty, regardless of the scale, time frame, or type of uncertainty involved.

A critical review of Real Options thinking for valuing investment flexibility in Smart Grids and low carbon energy systems

This paper presents how to apply a decision-making tool based on real options to assess the investment in a wind energy plant.

A decision-making tool for project investments based on real options: the case of wind power generation

This paper presents a decision-making tool for investment in a wind energy plant using a real options approach. In the first part of the work, the volatilities of market prices and wind regimes are obtained from Geometric Brownian motion with Mean Reversion (GBM-MR) and Weibull models, respectively. From these and other values, such as investment and maintenance costs, the Net Present Value (NPV) curve (made up of different values of NPV in different periods) of the investment is calculated, as well as its average volatility. In the second part, a real options valuation method is applied to calculate the value of the option to invest. The volatility of the NPV curve reflecting different periods is inserted into a trinomial investment option valuation tree. In this way, it's possible to calculate the probabilities of investing right now, deferring the investment, or not investing at all. This powerful decision tool allows wind energy investors to decide whether to invest in many different scenarios. Several realistic case studies are presented to illustrate the decision-making method.

/pdf/risk-assessment-of-wind-power-generation-project-investments-2yzlsvq02l.pdf

Risk assessment of wind power generation project investments based on real options

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A decision-making tool for project investments based on real options: the case of wind power generation

Risk assessment of wind power generation project investments based on real options