Evaluation Of Wind Power CDM Project Investment Income Based On Real Options Theory

This dissertation use theory of real option to study the investment benefit evaluation of Chinese wind power CDM projects. In this dissertation, we refer CDM project investments as a deferred option.The options within a certain limited time span are economically viable. By solving the value of the real option, we can compare theENPV and the NPV. Also we can get the result of whether the wind power CDM projects are economically feasible. The significance value of using real option theory is that it avoids the defect of traditional NPV method for ignoring the volatility of CERs pricewhich generated by CDM projects. The real option way is more objective measure of estimation the potential investment value of the project.Firstly, we regard wind power CDM projects as a potential deferred options. Investors have the right in the next period of time to decide whether the time to invest or not to invest. Wind power CDM projects is facing an uncertain future CERs income once invested. Different evaluation CERs revenue gains would make the existence of different results. however, if the use of real options to evaluate in wind power CDM project, as long as volatility of CERs is firm, the project’s ENPV is certain. But because investors have differenent expectation of σ, we further study the evaluation model under different volatility and calculated internal rate of return ofboth NPV and ENPV of the expected a, both of the internal rate of return also can reflect the value of their investments.Secondly, because we have determined the expected volatility, we can figure out the option priceof CDM projects under the expected σ via BS formula. By comparingthe value of NPV and ENPV with net income of wind power CDM projects to determine at this stage whether the project can be invested into. If "Waiting value" greater than "invest now" value, it is necessary to deferred the investment. Conversely, if the "wait worth" less value than "invest now", you can invest immediately. In addition, because of the investment projects with certain license term, the paper established an evaluation model to study the evaluation in a particular time.This dissertation attempts to use the ideal of real options to construct an evaluable method which can estimate the situation under different CERs income volatility. And we also will figure out a way to use CDM project’s IRR distributions to charge whether determine an investment. We use all the methods above to support wind power enterprises to analyze the viable of their won CDM program.Finally, this dissertation will introduce an CDM project in Zhejiang province and demonstrate how to use the evaluation model to analyze the real problem. Through this project we will get the result that wait the opportunity is more valuable than operate it right away. And our analysis suggest investor to wait for more information in future before do anything irrevocable.