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Research article2013Peer reviewedOpen access

Land-use change and solar energy production: a real option approach

Gazheli, Ardjan; Di Corato, Luca

Abstract

Purpose– In this paper, a real option model is developed to examine the critical factors affecting the decision to lease agricultural land to a company installing a PV power plant. Subsidies introduced by governments for the production of renewable energies have increased the investments in this sector. Since ground-based solar cells need land for energy production, then potential trade-off with agriculture in terms of land exists. The paper aims to discuss these issues. 

Design/methodology/approach– The paper uses the real option approach in order to take into account for uncertainty and irreversibility of the farmer's decision. 
Findings– By applying the model to the province of Bologna (Italy), the paper illustrates the possible land-use change scenarios in this area. The paper concludes by discussing the importance of PV energy production as a source of income for farmers and its implications from a social perspective. 
Originality/value– The research is applied to the province of Bologna (Italy) where investments in ground-based solar cells are becoming quite common. The originality lies in the fact of considering the investment as irreversible, since it is a 20-year commitment from the farmers. The paper also takes into account the uncertainty in agricultural commodities' prices.

Keywords

Land allocation; Real options; Renewable energy; Solar farm; Uncertainty

Published in

Agricultural Finance Review
2013, volume: 73, number: 3, pages: 507 - 525

SLU Authors

  • Gazheli, Ardjan

    • Autonomous University of Barcelona (UAB)

Global goals (SDG)

SDG7 Affordable and clean energy

UKÄ Subject classification

Economics

Publication identifier

  • DOI: https://doi.org/10.1108/AFR-05-2012-0024

Permanent link to this page (URI)

https://res.slu.se/id/publ/50588