Real Options and their application in renewable energy projects. State-of-the-art review

Abstract

The use of renewable energy sources, such as wind, solar, among others, has been growing, especially in recent years. The main objective of this study was to conduct a literature review on the real options approach for assessing the feasibility of investing in energy production and its derivatives. Thirty publications on the mentioned topic were analyzed using the Mendeley Reference Manager bibliographic software and categorized into seven groups according to their purpose: 1) Evaluation of renewable energy projects or investments, 2) Evaluation of non-renewable energy projects or investments, 3) Evaluation of energy auctions, portfolios, and investments in the energy market, 4) Evaluation of renewable energy technologies, 5) Evaluation of the impact of regulatory policies on renewable energy projects, 6) Evaluation of the transition to renewable energy generation, and 7) Evaluation of the design, size, and location of wind farms. Nine types of options were identified: 1) Waiting, 2) Delaying, 3) Anticipating, 4) Expanding, 5) Exercising, 6) Rejecting, 7) Abandoning, 8) Expanding, and 9) Switching. Additionally, the techniques and models applied to evaluate the options and simulate the twenty-nine uncertainties, grouped into eight categories, considered in the research were examined. In the future, there is a need to increase studies using the real options approach to evaluate renewable energy projects under uncertainties, applying new evaluation techniques that allow for the valuation and establishment of flexible strategies.