The Determination of Concession Period for Build-Operate-Transfer Solar Photovoltaic Power Project under Policy Incentives: A Case Study of China

Zeng Zeng,Chen Chen

doi:10.3390/en12183520

Abstract

Since the concession period is one of the most crucial variables influencing the success of a photovoltaic (PV) power project under build-operate-transfer (BOT) mode, this paper presents a real option game model—which integrates the real option and cooperative game theory—to determine the optimal concession period of the BOT solar PV power project under policy incentives by considering the value of the option to defer. In the proposed model, an effective interval of concession period for the BOT project was identified by using a real option, and the equilibrium value of the concession period was obtained by applying classical optimization theory. To evaluate our model, we empirically determined the optimal concession period for the BOT solar PV power project in China, and a sensitivity analysis was conducted to demonstrate how relevant influential factors, which are presented in the model, affect the equilibrium value of the concession period and its effective interval. The results indicate that the current investment environment in China could successfully implement the BOT solar PV power project under policy incentives, including initial cost subsidy and the feed-in tariffs mechanism. While the high volatility of electricity demand, investment cost, and land-use rent fee can lead the failure of the BOT solar PV project implementation, promoting the technological development of PV power generation, maintaining the market stability, and increasing the policy incentives can help the BOT power project to be arranged with an optimal concession period. In addition, the feed-in tariffs mechanism is more helpful than the initial cost subsidy for winning the BOT contract.

Highlights

Nowadays, due to the problems of environmental pollution and energy shortage, renewable energy generation has played a strategic role in promoting the utilization of renewable energy worldwide, especially for the countries with a heavy reliance on fossil fuels [1,2]
Considering these, our study proposes a real option game model, which integrates the real option and cooperative game theory, to determine the optimal concession period of the BOT solar PV power project under policy incentives, which considers the value of the option and is built based on the investment environment of China
As shown ininFigure theeffective optimalinterval concession period is determined two procedures in option which procedures which2,an for the concession periodthrough is identified by using real an effective for the concession period is identified by using real option by theory first, classical and the theory first, interval and the equilibrium value of the concession period is obtained applying equilibrium of the concession period is obtained by applying classical optimization theory

Summary

Introduction

Due to the problems of environmental pollution and energy shortage, renewable energy generation has played a strategic role in promoting the utilization of renewable energy worldwide, especially for the countries with a heavy reliance on fossil fuels [1,2]. Energies 2019, 12, 3520 power generation project and accelerate the electricity market-oriented reform in China, some financing modes, such as BOT, securitization, and peer-to peer financing, have been encouraged by the government [6]. Within these modes, the BOT mode has the advantages of massive capital, efficient operation, and advanced technologies compared with other modes. The BOT mode has the advantages of massive capital, efficient operation, and advanced technologies compared with other modes It has been taken as an important policy measure to promote the investment in the PV power project [7,8]. The BOT mode has been used in a number of solar PV power projects, such as Shandong, Hunan, Gansu PV power, and has obtained certain achievements, which alleviates the financial burden of the government and stimulates private participation in the PV power project

Objectives

Methods

Findings

Conclusion