Study On Investment Decision Of Photovoltaic Power Station Based On Compound Real Options

Against the background of energy crisis,greater need for power,and advocating for policies that support transition to a low-carbon economy in China,solar photovoltaic power generation projects are extremely popular due to their safety,reliability,no emission of pollutants,low carbon and environnmental friendliness.The growth of solar photovoltaic power generation sector is unstoppable.Reasonable assessment and decision making are especially important before making investment in a solar photovoltaic power plant project because such projects are influenced by political,economic,social and environmental changes throughout their life cycle.Compared with traditional approach to decision making and evaluation of investment projects,real options approach is used by some scholars in evaluation of investment projects because the approach can well reflect uncertainty of the projects and the value of managerial flexibilit y.Only investment assessment and decision making of a single project or a single phase of a project are considered in most studies,overall investment assessment and decision making of phase-based projects are seldom considered.In view of this,this paper creates a method that is used to assess the value of two-phased PV power plan projects and choosing the best opportunity for making investment in such projects based on relevant theories and methods of compound real options.Based on real option analysis,influences of on-grid power tariff,the price of carbon,and uncertainty of static investment on value of the projects are considered in the method.Based on such a consideration,a model for investment decision making is built by focusing on the option to defer investments in PV power plant projects.The paper first expounds concepts related to real options and features of options of investments in PV power plant projects.It is pointed in the paper that in the framework of real options,decisions to make investments in PV power plant projects are made based on extended net present values which include traditional net present values and the value of flexibility in choosing the time for making investments.The paper discusses the factors influencing net present values of PV power generation projects,net present values of such projects,formula used to seek solutions,and reflection of the value of flexibility;then,the paper takes two-phased PV power plant projects as an example to determine decision making framework of compound real option method.With such a framework,a model for making an investment decision in two-phased PV power plant projects is built with decision making process and steps pointed out;at last,the method of determining constituent factors are pointed out.With the help of a project contemplated to be constructed,a detailed explanation is made about the process of calculating the value of a PV power generation plant project and the process of choosing the best opportunity for making investment.The paper also points out that the method is operable on condition that parameters are obtainable.Others may refer to this when making decisions of investing in similar projects.