GLS GROUP
  • Home
  • Expertise
  • Experience
  • Our Team
    • Richard Swanson, PH.D
    • Joel Gallo
    • Karen Lock
  • Value Watch
  • GLS Green Growth
  • Contact
    • Contact Us
    • Careers

Value Watch.
Economic and finance topics in civil infrastructure

When to Use a Real Options Analysis

12/15/2019

0 Comments

 
Real options analysis captures the value of flexibility in hydropower design that other decision-making processes may not.

The academic journal Renewable Energy Focus has recently published one of our collaborative research articles. The article highlights valuation techniques at hydropower plants when risks of climate change and other uncertainties are high. Here is part of the abstract, with a link to more.
Development strategies on the African continent include significant hydropower investment to meet a growing energy demand. However, long-lived assets, such as hydro facilities, face climate risks, among others, that shorter-term investments may not. Various tools for quantifying these risks and offering decision-makers some guidelines for investment strategies, particularly under climate uncertainty, are increasingly used to evaluate broad policy choices and specific investment decisions. Given uncertainties such as climate change, and the wide range of decision-making levels, all available tools have a role, depending on the need of the decision-maker. However, not all yield the same result under all circumstances.​

This paper reviews three methods of analysis for decision making under uncertainty: Benefit-Cost analysis under uncertainty (BCA), Robust Decision Making (RDM), and Real Options Analysis (ROA). The paper then illustrates each within a project, the Batoka Gorge Hydropower Facility. We find that within the context of Batoka, the three analyses point to similar design choices with one important exception: Real Options offers values for the flexibilities embedded in projects or suites of projects, whereas the others do not incorporate these valuations. Furthermore, we find that flexibility, especially when integrating multiple risks into the project, creates value in smaller designs, such that the NPV exceeds that of inflexible, though larger designs.
​

To read the full article, follow this link: https://authors.elsevier.com/a/1a8Ha6F2kzMSYY. 
0 Comments

    Richard Swanson, Ph.D.

    Asset valuation and project finance expert, specializing in financial and economic analysis of civil infrastructure assets.

    Archives

    June 2022
    May 2022
    March 2022
    February 2022
    January 2022
    December 2021
    April 2021
    March 2021
    January 2021
    June 2020
    January 2020
    December 2019
    November 2019
    September 2019
    July 2019
    May 2019
    April 2019
    February 2019
    January 2019
    November 2017

    Categories

    All
    Africa
    Green Energy

    RSS Feed

Powered by Create your own unique website with customizable templates.
  • Home
  • Expertise
  • Experience
  • Our Team
    • Richard Swanson, PH.D
    • Joel Gallo
    • Karen Lock
  • Value Watch
  • GLS Green Growth
  • Contact
    • Contact Us
    • Careers