Di Corato, Luca
- Department of Economics, Swedish University of Agricultural Sciences
Abstract
In a stochastic dynamic frame, we study the technology choice problem of a continuous co-digestion biogas plant where input factors are substitutes but need to be mixed together to provide output. Given any initial rule for the composition of the feedstock, we consider the possibility of revising it if economic circumstances make it profitable. Flexibility in the mix is an advantage under randomly fluctuating input costs and comes at a higher investment cost. We show that the degree of flexibility in the productive technology installed depends on the value of the option to profitably re-arrange the input mix. Such option adds value to the project in that it provides a device for hedging against fluctuations in the input relative convenience. Accounting for such value we discuss the trade-off between investment timing and profit smoothing flexibility. (C) 2011 Elsevier B.V. All rights reserved.
Keywords
Real options; Flexibility; Technological choice; Renewable energy; Biomass; Anaerobic digestion
Published in
Energy Economics
2011, volume: 33, number: 6, pages: 1186-1193
Publisher: ELSEVIER SCIENCE BV
SLU Authors
Global goals (SDG)
SDG7 Affordable and clean energy
UKÄ Subject classification
Economics and Business
Bioenergy
Social Sciences
Publication identifier
- DOI: https://doi.org/10.1016/j.eneco.2011.05.012
Permanent link to this page (URI)
https://res.slu.se/id/publ/57938