The unnoticed impact of long-term cost information on wind farms' economic value in the USA. - A real option analysis

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dc.contributor.authorMaeda, Mansaku
dc.contributor.authorWatts, David
dc.date.accessioned2025-01-23T21:14:57Z
dc.date.available2025-01-23T21:14:57Z
dc.date.issued2019
dc.description.abstractRenewable energies are a natural replacement for conventional or fossil fuel energy generation. One of these sources, wind energy, has exhibited significant cost reductions during the last decades. Even though this historical cost reduction trend is well known in the industry and in the academia, information on this cost trend and volatility has been scarcely incorporated in previous works, thus a natural concern arises when assessing their influence on the economic valuation of wind farms.
dc.description.abstractMoreover, wind projects are modular in size and have a short time-to-market, providing a valuable managerial flexibility to defer investment under non-attractive market conditions, such as high development cost scenarios. Traditional evaluation tools often consider those scenarios, wrongly assuming that wind-developers would move forward with the project under such conditions.
dc.description.abstractAccordingly, this paper analyzes the effect of incorporating both generation cost history and investment flexibility in the valuation of wind farms in the United States using Real Options methodology. Taking two decades of cost data and a reference wind farm, this "uncertainty-flexibility" effect is incorporated and valued, finding that the value of the wind project is 14.2% larger than the one neglecting such effect - where cost stochasticity and managerial flexibility are ignored. Therefore, traditional tools for project valuation, such as discounted cash flow and scenario analysis can no longer solely be used, as they do not properly account for the cost reduction trend, uncertainty, and managerial flexibility that a wind farm could face.
dc.fuente.origenWOS
dc.identifier.doi10.1016/j.apenergy.2018.11.065
dc.identifier.eissn1872-9118
dc.identifier.issn0306-2619
dc.identifier.urihttps://doi.org/10.1016/j.apenergy.2018.11.065
dc.identifier.urihttps://repositorio.uc.cl/handle/11534/101059
dc.identifier.wosidWOS:000465509500041
dc.language.isoen
dc.pagina.final547
dc.pagina.inicio540
dc.revistaApplied energy
dc.rightsacceso restringido
dc.subjectLevelized cost of energy
dc.subjectWind energy
dc.subjectManagerial flexibilities
dc.subjectDeferring investment
dc.subjectRenewable energy
dc.subjectReal option
dc.subject.ods13 Climate Action
dc.subject.ods09 Industry, Innovation and Infrastructure
dc.subject.ods11 Sustainable Cities and Communities
dc.subject.ods07 Affordable and Clean Energy
dc.subject.odspa13 Acción por el clima
dc.subject.odspa09 Industria, innovación e infraestructura
dc.subject.odspa11 Ciudades y comunidades sostenibles
dc.subject.odspa07 Energía asequible y no contaminante
dc.titleThe unnoticed impact of long-term cost information on wind farms' economic value in the USA. - A real option analysis
dc.typeartículo
dc.volumen241
sipa.indexWOS
sipa.trazabilidadWOS;2025-01-12
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