A Real Options-Based Decision-making Framework For The Investments Of Photovoltaic Power Station Projects

Photovoltaic technologies for producing renewable energy have promising future for substantial reductions in carbon emissions and environmental footprints. Investments in Photovoltaic Generation Projects require substantial implementation costs followed by a long period of recovering the invested capital through savings in utilities bills. Favorable timing of renewable energy system implementation can reduce capital expenses and enhance returns on investments. An appropriate investment decision making method is needed to identify the appropriate time to implement any given renewable energy system and to find the value of properly scheduled investment. Real options analysis provides the ability to address investment timing under uncertainty and managerial flexibility. However, current investment valuation models, e.g. traditional discounted cash flow (DCF), are characterized by ignoring the uncertainty in economic and technology and the managerial flexibility. This study addresses the theoretical and practical limitations of traditional DCF and creates the methodology for investment decision making based on real options analysis. This workable model is tailored to the context of Photovoltaic Power Station Projects. The primary contribution of this research to the body of knowledge is the creation of (1) a method to account for uncertainty about power generation revenue, carbon trading revenue and the trend of the utility cost;(2) a method to estimate the volatility of Photovoltaic Power Station Projects subject to uncertainty; and (3) an investment valuation approach to identifying the best time to implement Photovoltaic Power Station Projects and to determine the corresponding investment option value. It is expected that this work will contribute to the construction engineering and management global community by presenting a practical investment assessment tools that help in making hard renewable-energy-projects investment decisions and will therefore increase the likelihood of achieving ambitious goals for the adoption of renewable energy systems.