A Study On The Hydropower Project Investment Decision

In this paper, a detailed study of the theory of industrial investment decision-making theory, contrastively analyzed management of domestic and international hydropower industry and future development trends. On the basis of analyzing the status of research and analysis of Chinese hydropower industry, this article comparatively analyze the traditional investment decisions method and the real options theory. In economic development, analysis of the traditional investment decision-making, such as net present value method, internal rate of return method provides a convenient tool for the investment decisions of the various projects, so that enterprises have a more objective measure of standard. And in practice the method of traditional project investment decision is proved to be effective on the assessment of cash flow less volatility of projects. Therefore, the traditional investment decision analysis methods on project investment decisions are effective. However, with economic development, technology innovation, new industries continue to emerge, the current investment environment has undergone enormous changes, more and more new types of investment projects, during project investment the uncertainty enterprises faced is also growing. Especially in the number of venture capital projects, R&D projects and natural resource development projects with higher risk and uncertainty of investment projects, because Premises and assumptions established by the method already has faced a huge challenge,the methods of investment decision analysis have been unable to meet the requirements of short-term decision-making analysis of the above types of projects. Real options theory is just a new approach for decision makers. The theory of investment projects in a variety of investment opportunities deemed to analyze options, be able to more accurately assess the true value of the investment projects in an uncertain environment, which makes policy makers timely, dynamic grasp of investment decisions, as much as possible to estimate the risk loss and obtain the maximum return on investment. This article introduced the system on the basis of the real option theory classic industry cash flow present value method and join the real options theory of investment analysis methods into instance, drawn both to adapt to different time Category view, traditional cash flow present value method is simple and easy to operate, its investment in hydropower in the application process from the generating capacity to the grid electricity sales revenue to the total profits to the ideas of the last cash flow in net profit forecast yield relatively stable or changing environment there is a pattern, this method is feasible. The real options theory are applied to the external changes in a complex environment, the risks and benefits of coexistence projects, this project uses real option theory closer to reality. So when the enterprise is prepared for a long time in the life cycle of the hydropower project has a project to use the traditional cash flow value method to predict the benefits of the project, more in line with the project, this paper presents the real option method and the traditional investment not better or worse, real options theory is built on the basis of the traditional investment theory, according to the investment objectives, choose a different investment analysis methods. The main content of this article:The first chapter is the introduction to explain the background to the study, the purpose and significance of research and given the framework of analysis methods and the entire thesis paper. Which highlighted the need for the development of the hydropower industry in China, with the status quo of China’s rapid economic development and high energy, China will need a lot of energy, and use of traditional energy to China’s enormous pollution and the pressure of international public opinion, must vigorously develop clean energy in China.The second chapter is the theoretical basis of the literature review, this chapter is mainly from three aspects have been elaborated:First, a theoretical study on a macro-economic policy point of view based on industry research for the hydropower industry, the country’s macroeconomic policy change impacts. There is a study of industrial policy and industrial economic theory. Second, expounded the theory of investment decisions, mainly to explain the changes of domestic and foreign investment theory. Third, the article describes the theoretical study of the status of the small hydropower industry at home and abroad.The third chapter is the important chapter on hydropower projects investment decision analysis, facing the risk of investment principles and procedures. The hydropower station investment decisions of the two points is the expected future income and to be the risk of investment projects. No matter what kind of theory, only when the future expected income is much larger than expenditures, and return requirements, companies can invest, which faced the variable is investment risk, subject to the risk of investment projects the size of the investment decision-making. First, the analysis of corporate investment decisions, the main distribution of dividends or rate of return method and by adding the net present value method of real options theory, the investment approach of the two will be discussed in later chapters. Second, the risk of investment in hydropower projects, a major consideration for investment decisions is the investment risk considerations, risk policy risk, management risk, economic risk, the risk of the natural environment. Which is the future impact of hydropower station is the natural environment, risk and policy risk, both of which hydropower projects can not control, only the beginning of the investment to do the expected risk, we will not encounter the situation deteriorated, caught by surprise. Third, this article describes the investment principles of hydropower stations, hydropower station investment principles in order to reduce investment risk and increase revenue. Investment principles of seeking truth from facts to principles, the principle of independence, normative principles, systematic principle, the principle of cost-effective for enterprises in the market economy, cost-effectiveness is the most important principle, only with the profitability of the enterprise is survival value of the enterprise. Is the program of investment in hydropower projects, the program found to be the initial contact of the investment projects, project due diligence stage, to invest in building computing investment decision-making in five steps.The fourth chapter described the background information of the case. This paper studies A hydropower station investment decision analysis, A hydroelectric project is the main stream of the River of China’s Guangxi Province, the Heyuan elevation1660m, the whole basin area of1499square meters, the main stream of a total length of96.6km, total drop of1117meters. According to regional socio-economic development and the river’s natural characteristics, as well as the Guangxi provincial government hydropower development files, a River Basin hydropower cascade development is divided into six, namely, to draw water Taipa Hydropower days Zi Hydropower freshmen bridge Hydropower, Lake Hydropower Station of seedlings hemp stems hydroelectric plants and to plant hydroelectric power stations.The fifth chapter is the investment in hydropower projects case studies, this chapter is in front of the chapter content-based A hydropower project investment analysis, the use of the distribution of the dividend yield method and the net present value method to join the real options theory, A hydropower project investment and risk analysis experience, and finally from the decision-making process of financial evaluation, the breakeven analysis, financial sensitivity analysis, the economic risk analysis point of view, the investment decisions of the A hydropower project assessment as to whether investment because the income level of the different requirements of the different nature of the unit, may be the result may not be the same, the main focus in this chapter is the specific application of the method described.The sixth Chapter Conclusions and outlook, summarize the main conclusions of the paper and inadequacies, and policy recommendations and future research directions. The paper concludes:First, real options theory is broken through the limitations of traditional investment decision analysis, environment of uncertainty in the investment forecast, prediction results than the discounted cash flow method more flexible and better reflect the potential value of the market for the provide investors with a new evaluation. Can be allocated for the irreversible and a more stable environment for investment, the dividend yield method with simple operation can be complex reality into a linear assumption, to facilitate the advantages of the investors to make investment decisions. The hydropower industry has less of the income factor, regularity of features, short-term speculation can use the real options theory to make decisions for long-term investment decisions, corporate long-term quality resources to hold their own business, real options theory the human factor to consider its focus on the judgment of the external non-deterministic, but the quality of daily operation and management of hydropower stations a great influence on the project’s profits, so can be assigned to the dividend yield method more Credibility.Second, Hydropower investment risks, so take a variety of risk aversion measures to follow the investment principles.Third, the payback period, enterprises should focus on the influence factors of the net present value, internal rate of return of various financial indicators, these factors determine the changes in the project return.The results of this study will help investors to accurately grasp the investment opportunities of the hydropower industry, thereby to provide support for scientific investment decisions for investors to obtain a reliable investment income, has important theoretical and practical guiding significance. In addition, the hydropower industry, revealing the vision and direction of their industry, to further enrich and improve the investment decisions of industry, especially the theoretical methods and content of the system of the new energy industry in this direction, pointed out that the hydropower station investment research is a complex systems engineering, we must build the technology, law, finance the full range of knowledge systems, to conduct in-depth study, this paper presents a feasible method to provide a reference model for similar studies of other similar industries.