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Renewable Electricity Transition: A Case for Evaluating Infrastructure Investments through Real Options Analysis in Brazil

Published version

Published version
Peer-reviewed

Repository DOI


Change log

Authors

Martins, AC 

Abstract

jats:pThis paper explores the uncertainty of expected returns by adopting the real options analysis method for the financial evaluation of renewable energy projects in Brazil. Energy transition is key to meeting climate targets, and real options analysis can play a pivotal role in evaluating renewable energy projects to meet those targets. The impact of the volatility of the chosen variables on the viability of the project is studied using Monte Carlo simulation in the R software. The results indicate that the lower the option value the higher the volatility of the project, leading to lower likelihood of the project being financed. The resulting model represents a simple instrument that can be incorporated in larger modelling frameworks (e.g., agent-based simulation) to assess the impact of real option analysis on different markets and environmental and socio-political conditions. These findings represent a strong case for the adoption of systems modelling to inform policy to support global energy transition, as the application of this method can make a renewable energy project financially more attractive in comparison to those relying on carbon intensive energy sources.</jats:p>

Description

Peer reviewed: True


Funder: Department for Energy Security and Net Zero (DESNZ)


Funder: Children Investment Fund Foundation (CIFF)–United Kingdom, project consortium Economics of Energy Innovation Systems Transition (EEIST)

Keywords

renewable energy, finance, volatility, real option analysis, Monte Carlo Simulation

Journal Title

Sustainability (Switzerland)

Conference Name

Journal ISSN

2071-1050
2071-1050

Volume Title

15

Publisher

MDPI AG
Sponsorship
Coordenação de Aperfeiçoamento de Pessoal de Nível Superior (CAPES)-Brazil (001)
Fundação de Amparo à Pesquisa do Estado de São Paulo (FAPESP) (2015/24341-7)