Power generation investment opportunities evaluation: a comparison between net present value and real options approach

2006 ◽  
Author(s):  
Zhe Lu ◽  
A. Liebman ◽  
Zhao Yang Dong
Keyword(s):  
Power Generation ◽  
Real Options ◽  
Net Present Value ◽  
Present Value ◽  
Real Options Approach ◽  
Investment Opportunities

Business valuation strategy for new hydroponic farm development – a proposal towards sustainable agriculture development in United Arab Emirates

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Gyanendra Singh Sisodia ◽  
Raweya Alshamsi ◽  
Bruno S. Sergi
Keyword(s):  
Food Security ◽  
Real Options ◽  
United Arab Emirates ◽  
Net Present Value ◽  
Good Health ◽  
Social Implications ◽  
Present Value ◽  
Content Type ◽  
Real Options Approach ◽  
Fresh Vegetables

PurposeThis study aims to evaluate a hydroponic farm (through nutrient film technique) while considering uncertainty, sustainability and the system's utility in the dominant desert geography. The idea of the hydroponic farm is to allow individuals/businesses to grow plants. Given the geographical condition, the hydroponic system may be useful in the Gulf context and may lead to food security and sustainability. Additionally, the UAE government has initiated several support schemes that can be availed for investing in such businesses that can contribute to the nation's food security.Design/methodology/approachThe hydroponic farm is evaluated using the net present value and real options approach. The authors studied five scenarios: 1. business as usual, 2. 50% subsidy on initial investment through Khalifa funding, 3. 4% premium, 4. Subsidy plus premium and 5. solar panel installation with bore well.FindingsAs per the assumptions and data usage, all the scenarios shows a positive net present value (NPV); Nevertheless, scenarios 4 and 5 report the significant highest net present and delay value.Research limitations/implicationsThis study has environmental, economic and social implications. Lower imports indirectly lead to lower carbon footprints. The local production of food ensures higher employability in the sector and increase in local consumption. Additionally, fresh food consumption is directly associated to good health.Practical implicationsSupportive policies such as subsidies through Khalifa funding may accelerate the expansion of such projects through domestic and foreign investments. One of the important takeaway from the study is to invest in the training of the workforce.Social implicationsGiven the geographical condition, the UAE usually depends on food imports. If the hydroponic farms become popular, the residents will have access to fresh vegetables and fruits. Higher engagement in agriculture activities also ensures a significant increase in agriculture-related businesses and higher employability.Originality/valueThe study adds novelty to the literature because the effect of Khalifa funding and investment analysis on solar (wells) has not been evaluated in any hydroponic studies. We presented the results with tornado graphs using NPV risk and real options approach in the Gulf context. The study represents functional scenarios that were previously not found in the literature.

scholarly journals A Real Options Approach to Valuate Solar Energy Investment with Public Authority Incentives: The Italian Case

Energies ◽  
2020 ◽  
Vol 13 (16) ◽  
pp. 4181
Author(s):  
Antonio Di Bari
Keyword(s):  
Solar Energy ◽  
Real Options ◽  
Real Option ◽  
Net Present Value ◽  
Option Value ◽  
Present Value ◽  
Energy Investment ◽  
The Real ◽  
Real Options Approach ◽  
Real Option Value

Solar energy investment represents currently a valid reason to support sustainable economic development. In fact, over the last few years, governments have applied different measures to incentivize private consumers and firms to use renewable energies. Photovoltaic (PV) projects are characterized by uncertainty due to meteorological conditions, the unpredictable behavior of government, and managerial flexibility. Since the Net Present Value (NPV) approach is not able to capture these uncertain factors, it was replaced with the Real Options Approach (ROA). The latter method manages to embed flexibility in PV investment using binomial trees. This paper valuates PV investment in all regional areas in Italy using an integrated approach between the discounted cash flows method and real option value, called Expanded Net Present Value (ENPV). We fit the probability of tax benefits into a binomial lattice model after analyzing the geographical position and weather conditions of all regional capitals of Italy. The results show that the cities with high irradiance/temperature have positive NPV and high investment values. On the other hand, while most cities have negative NPV, the inclusion of the flexibility in investment decisions gives additional value to the project, making the ENPV positive and implying an attractive investment opportunity with the possibility of delaying the project. We also propose a sensitivity analysis that shows how the real option value changes when incentive policies of the government become more attractive. This paper contributes to the existing literature in the way of considering financial, meteorological/geographical, and political factors to valuate PV investment.

scholarly journals EVALUATION OF INNOVATIVE AGRICULTURAL EXTENSION PROJECTS USING NOVEL INVESTMENT TOOLS / INOVACINIŲ ŽEMĖS ŪKIO PLĖTROS PROJEKTŲ VERTINIMAS NAUJOMIS INVESTICINĖMIS PRIEMONĖMIS

2010 ◽  
Vol 16 (4) ◽  
pp. 703-716 ◽  
Author(s):  
Anastasios Michailidis ◽  
Fotios Chatzitheodoridis ◽  
George Theodosiou
Keyword(s):  
Real Options ◽  
Information And Communication Technologies ◽  
Net Present Value ◽  
Agricultural Extension ◽  
Present Value ◽  
Real Options Approach ◽  
Drastic Increase ◽  
Information And Communication ◽  
Agricultural Areas ◽  
Options Value

This article extends the employment of novel investment evaluation tools into agricultural extension issues. In particular the concept of real options methodology has modulated, into an innovative agricultural project called “wema”, to model design flexibility in the realistically uncertain environment of information and communication technologies (ICT). Taking into account the great importance of ICTs, as the principal driver of change in agricultural areas, as well as the drastic increase in ICTs adoption over the last decade, a study evaluating the adoption parameters of ICTs can prove significantly valuable. Besides, any issue related to ICTs is extremely interesting and it belongs to the modern subject‐matters of the agricultural economics science. Empirical results revealed that, according to the traditional criterion (Net Present Value), the implementation plan of the “wema” project is feasible. However, assuming the presence of uncertainty, application of a real options approach demonstrates that the Net Present Value may lead stakeholders to faulty decisions, as the innovative plan is rejected. The results indicate that the options have a significant value and highlight the fact that ignoring options value process can lead to a significant error. This obviously indicates the importance of combining the Net Present Value criterion in agricultural extension investments with the real options approach. Santrauka Straipsnyje aprašomos naujos investavimo į žemes ūkio plėtrą vertinimo priemonės. Sukurta realių alternatyvų metodologija, kuri pritaikyta inovatyviame “Wema” žemes ūkio projekte. Empiriniai rezultatai atskleidė, kad pagal tradicinį kriterijų – grynąją dabartine verte – “Wema” projektą įgyvendinti įmanoma. Tačiau projekto dalyviai, šiuo metodu vertindami neapibrežtumus, gali priimti klaidingą sprendimą ir projektą atmesti. Tai akivaizdžiai rodo, kad vertinant žemes ūkio pletros projektus, grynosios dabartines vertės kriterijų reikia derinti su realių alternatyvų metodologija.

APPLYING REAL OPTIONS AND THE MAXIMUM NPV RULE TO MARKET ENTRY/EXIT STRATEGIES

2005 ◽  
Vol 22 (01) ◽  
pp. 71-83 ◽  
Author(s):  
TYRONE T. LIN ◽  
TUNG-LI SHIH
Keyword(s):  
Decision Making ◽  
Growth Factors ◽  
Real Options ◽  
Market Entry ◽  
Net Present Value ◽  
Cash Flows ◽  
Present Value ◽  
The Real ◽  
Real Options Approach ◽  
Complex Calculation

This study applies the real options approach to examine the maximum net present value of the market entry/exit thresholds given uncertain cash flows. The discount and growth factors are determined in the proposed entry/exit models, facilitating the complex calculation of the discount and growth rates to determine the present value of cash flow streams. Accordingly, this work successfully combines the maximum net present value method and the real options approach for decision-making by simply considering the discount and growth factors.

scholarly journals Ethanol plant investment using net present value and real options analyses

2009 ◽  
Vol 33 (10) ◽  
pp. 1442-1451 ◽  
Author(s):  
Todd M. Schmit ◽  
Jianchuan Luo ◽  
Loren W. Tauer
Keyword(s):  
Real Options ◽  
Net Present Value ◽  
Present Value ◽  
Ethanol Plant

scholarly journals ANALISIS PENGANGGARAN MODAL PADA PT ULTRAJAYA MILK INDUSTRY Tbk. TAHUN 2013-2017

2018 ◽  
Vol 14 (2) ◽  
pp. 101-110
Author(s):  
Eka Lusvita Wulandari ◽  
Lily Rahmawati Harahap
Keyword(s):  
Opportunity Cost ◽  
Net Present Value ◽  
Average Rate ◽  
Capital Budgeting ◽  
Payback Period ◽  
Investment Analysis ◽  
Present Value ◽  
Investment Opportunities ◽  
Milk Industry ◽  
Real Losses

Capital budgeting in practice is intended to conduct an investment analysis of some available investment alternatives, and then determine or choose the most profitable investment. Inappropriateness in determining investment options will result in losses of either real losses or losses due to loss of opportunity to gain an opportunity cost that can actually be realized. The investment analysis will select the available investment opportunities, so that investment can be selected that will provide the greatest benefit of every dollar invested. Capital budgeting techniques can be analyzed by appraisal method of investment as follows: Average Rate of Return, Payback Period , Net Present Value, and Profitability Index.

Energy, economic, and environmental analysis of 10-MW biomass gasification based power generation in Malaysia

2020 ◽  
pp. 0958305X2093038 ◽  
Author(s):  
ABM Abdul Malek ◽  
M Hasanuzzaman ◽  
Nasrudin A Rahim ◽  
Yusuf A Al–Turki
Keyword(s):  
Power Generation ◽  
Power Plant ◽  
Net Present Value ◽  
Combustion Engine ◽  
Biomass Gasification ◽  
Rate Of Return ◽  
Internal Rate Of Return ◽  
Present Value ◽  
Internal Rate ◽  
Loan Financing

Biomass gasification based power plants can play an important role in power sector in Malaysia with her abundant agricultural and forest resources. In this research energy and economic feasibility, and environmental impact of biomass gasification power plant has been analyzed and assessed for sustainable power generation in Malaysia, the plant being a clean development mechanism supported project. Gasification based power generation with a dual fuel internal combustion engine is found more biomass combustion power plant. But, the annual fuel cost is significantly higher with gasification plant claiming MYR 10 million/y for a generation of 67,500 MWh. The net present value, internal rate of return, and PBP for a 10-MW gasification based dual fuel internal combustion engine power plant without loan financing using empty fruit bunch pellet as biomass; with CER issued at USD16/tCO2; and without loan financing provides net present value, internal rate of return, and PBP of MYR 19.68 million, 11.90%, and 6.05 y, respectively. With a loan financing at 3% per year with CER still be effective the net present value, internal rate of return, and PBP is estimated to be MYR 7.03 million, 3.97%, and 11.78 y, respectively. However, if a 60:40 debt equity is applied then the project net present value, internal rate of return, and payback period seen to improve slightly. The net present value attains a positive value of MYR 3.6 million. Internal rate of return and PBP values are found to be 7.08% and 8.27 y, respectively. The emission reduction achieved with the plant is 17,863 t CO2/y, 206 t SO2/y, 90 t NOx/y, and 10.37 t CO/y, respectively. Energy efficiency and tariff policy have been found to have highest impact on economic profitability of gasification based power generation units.

Maintenance Decisions for Offshore Structures Using Real Options Theory

2004 ◽  
Author(s):  
Ernesto Heredia-Zavoni ◽  
Sandra Santa-Cruz
Keyword(s):  
Decision Making ◽  
Real Options ◽  
Cash Flow ◽  
Net Present Value ◽  
Offshore Structures ◽  
Present Value ◽  
Real Options Theory ◽  
Financial Variables ◽  
Maintenance Decisions ◽  
Options Theory

Real Options methods are currently used to assess investment projects considering: (1) the decision options that one can have along the development of the project, such as to expand it, or reduce it, or to abandon it, or to differ it, and (2) the uncertainty in some financial variables for the assessment of the economic investment. In these two regards, Real Options methods are superior to the traditional Net Present Value method. The purpose of the present paper is to establish the basis for Real Options modeling for decision making on design, inspection, maintenance, and decommissioning of offshore structures. The use of Real Options theory is sought in order to account for: (1) uncertainties in the financial variables involved in risk assessment based on expected costs, such as the economic consequences due to failure of a system; and (2) uncertainties associated with the resistance and loading of the structure for reliability assessment. An application of Real Options Theory is given in the paper for decision making on maintenance for an offshore structure. Cash flow from oil revenue is modeled as a stochastic process. Preventive and corrective maintenance is analyzed as a critical situation where the decision maker has the option to pay the costs of maintenance in order to obtain a benefit. Expressions are derived for the estimation of the value of the maintenance option; they are based on the derivation of the Black-Scholes equation for the evaluation of financial options. It is shown that the value of such project is equal to the sum of the net cash flow of the project (as with a Net Present Value evaluation) plus the value of the maintenance option. Projects with one and two decision times along the life of the structure are formulated and analyzed. Closed form solutions are obtained for such cases. An example is given in order to illustrate the differences between maintenance decisions using the Net Present Value and the Real Options method.

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