Analysis Of Decision Method For Clean Energy Project Investment Under Incentive Policies

High oil prices and a shortage of energy reserves become the enormous problemsfaced by world, especially developing countries such as China. Clean energy isbecoming an increasingly important alternative energy sources. The severe conditionprompts the government to establish policies in order to improve energy efficiencyand the development of low-carbon economy. Development of clean energy iseffected by many uncertain factors. Government supporting policies and regulationsare essential to the development of clean energy. At the same time, investment inclean energy is policy-oriented. Investors will consider more factors under policyuncertainty, ultimately affecting the investment decisions of clean energy companiesfor clean energy. It is necessary to quantify the impact of these incentives for cleanenergy investment decisions. However the clean energy incentive policy can’t beconsidered under traditional investment method. So using the real options method toquantify the uncertainties related to incentives and to analysis the potential impact onthe investment behavior of enterprises is a strong point of view.Firstly describe the clean energy investment decision-making methods, includingnet present value (NPV) as the representative of the traditional decision-makingmethods and real options approach. Then review the incentives clean energyinvestment decisions researches at home and abroad. Then analyze the characteristicsof investment in clean energy, including uncertainty, the high cost of irreversibility,risk, and foreign and China’s clean energy incentives and incentives to investmentdecisions summarized. Finally, make a combination of the net present value methodand the real options approach to establish real option decision-making model for cleanenergy investment projects under incentive policies, and analyze incentive policies ofgeothermal resources heating projects in China, on the basis of which makinginvestment decisions for geothermal resources.This article has the following important research results: In the first place, describe the deficiencies of the traditional discountedinvestment decision-making methods on the basis of fully considering thecharacteristics of the investment in clean energy. Explain the applicability of the realoptions approach to make investment decisions in clean energy projectsSecondly, clean energy has uncertainty. One of the important factors is the policyfactor. The describe investment incentives of the major countries in the field of cleanenergy and China. Combine the traditional investment decision-making methods andthe real option method to describe the real option value under incentive policies,which is plus the NPV and the deferral option values draw the total value of theproject investment.Finally is the empirical analysis section which is a typical geothermal heatingproject. Above all, analyze this region’s geothermal resources development status andinvestment characteristics. Then establish real option decision-making model ingeothermal investment projects under the energy incentive policies on the basis of theanalysis of the policy to support the geothermal resources. After calculate NPV of thegeothermal heating project’s, in succession to the use of the Black-Scholes and binarytree option method to make evaluation of the option value of the project. The projecthas a value of the delay option because of that the government may introduceincentive policies in the near future on geothermal resources and ground thermalheating project.