Build-operate-transfer Projects Research Articles

The Mechanism and Countermeasures of the Impact of State Subsidy Backslide on the Efficiency of Waste-to-Energy Enterprises—A Case Study in China

The scientific investment decision model of waste incineration power generation is helpful in providing a scientific basis for the government and environmental protection enterprises to formulate reasonable waste prices. The waste incineration power generation project revenue and cost composition framework, based on the project net present value of factors affecting causality analysis, the construction of a waste incineration power generation PPP project net present value system dynamics model, and the use of Vensim PLE software, version 7.3.5, combined with the garbage power generation of listed companies, was built, and we put into use the enterprise’s financial data and the author’s research of the case of the BOT (Build–Operate–Transfer) project data to examine the validity of the model test, simulation, and sensitivity analysis. The results show that the regression of a national subsidy does not necessarily lead to a price adjustment of the waste disposal fee, and when a change in tariff subsidy occurs, the loss brought by the reduction in a feed-in tariff can be compensated by increasing the income from carbon sinks, decreasing the intensity of investment through technological advancement, improving the coefficient of waste power generation through garbage classification, and increasing the utilization of production capacity through the treatment of multiple wastes in a single or a combination of ways.

Factors influencing investment attraction in road infrastructure BOT projects: A comprehensive analysis in the southern key economic zone of Vietnam

Over the course of the last two decades, Vietnam has demonstrated a growing interest in public-private partnership (PPP) investments within the domain of road transport infrastructure. However, the overall success rate of these endeavors has remained constrained and, in fact, has displayed a propensity for decline. Understanding the primary determinants behind this phenomenon, particularly the internal factors within the management system, has been a perplexing and protracted process, hindering the development of viable solutions. This research employs a qualitative analysis approach, leveraging in-depth interviews conducted with 250 road traffic infrastructure PPP project managers and experts. The objective is to discern the factors that exert influence over the investment attractiveness of build-operate-transfer (BOT) projects in the vital Southern Key Economic Zone of Vietnam. Subsequently, utilizing the collated data, this study employs a quantitative methodology to measure the impact of these factors via a derived multivariate regression equation. The findings reveal the existence of five distinct groups of factors that affect the investment attractiveness of BOT projects in the Southern Key Economic Zone, classified by their respective levels of influence. These groups encompass factors relating to the role of the state, the legal framework, human resources engagement in PPP ventures, supportive financial instruments, and the allocation of risk. Notably, these outcomes align with previous research efforts, further substantiating the robustness and reliability of the findings presented within this study.

Development of a Financing Optimization Framework Based on Risk Simulation in BOT Projects: A Case Study of the Waste-to-Energy Project

Infrastructure projects that are mostly characterized by high uncertainty usually face various risks at all stages as timing risks, cost risks, and disruption in the executive processes (by the reason of unpredictable obstacles in financing risks, technology production, and so on). Owing to the complex nature of infrastructure projects, the build-operate-transfer (BOT) contract is usually concluded between the private and public sectors. Considering that the public sector transfers all or part of its financial risk to the private sector (contractors), in this type of contract, the distribution of risks is different from that of traditional contracts. Besides, project implementation methods and the lack of risk management might lead to the failure of the project. As the implementation of such projects, along with the risks of the projects that require a large amount of investment, it would be necessary to develop a proper financing schedule with consideration of the effect of repayment of various loans in the project to ensure the feasibility of the project. So, in this project, considering the effects of risks in a waste-to-energy infrastructure project, an optimal project financing framework is developed. In the current research, using Monte Carlo simulation, the impact of risks on the project is investigated during the construction period and the operation period. The results have shown that consideration of the impact of the risks on projects might have a significant effect on the increase of time and cost; nevertheless, the cost of optimal financing might reduce the project profit by 23%. The results indicate that choosing the appropriate financing solution guarantees the project’s final profit. Besides, it can help project managers to make the best financing decisions based on realistic situations.

Risk Assessment in BOT Contracts using AHP Technique

The process of risk assessment in the build-operate transfer (BOT) project is very important to identify and analyze the risks in order to make the appropriate decision to respond to them. In this paper, AHP Technique was used to make the appropriate decision regarding response to the most prominent risks that were generated in BOT projects, which includes a comparison between the criteria for each risk as well as the available alternatives and by mathematical methods using matrices to reach an appropriate decision to respond to each risk.Ten common risks in BOT contracts are adopted for analysis in this paper, which is grouped into six main risk headings.The procedures followed in this paper are the questionnaire method to assign the weights of each criterion and each alternative based on the evaluations of 10 experts in BOT contracts after building the questionnaire model.The appropriate decision was reached to respond to each risk, and then the best measures taken were made based on literature reviews of previous research regarding the procedures for risk response plans.

Appropriate Risk Response Planning of Build Operate Transfer Contracts for the Transportation Projects in Iraq

Abstract The identification of risks in construction projects gives advance indications of the potential risks that may occur during project planning, construction or management. Therefore, identifying those risks and preparing the necessary plans to respond to them is a key detail for the success of the project from its failure. The projects implemented in the manner of a Build Operate Transfer (BOT) contract are accompanied by many risks due to the multiplicity of parties and the multiplicity of their responsibilities, as well as the size of those projects because they are usually associated with infrastructure projects. The aim of this research is to identify the most prominent risks in BOT contracts and the planned response against each risk. The adopted methodology is through conducting interviews and a closed questionnaire (included 77 out of 100 respondents), and the adoption of statistical analysis through the SPSS program and the scale of relative importance.The relative importance index technique was used to rank the risks according to their importance and discuss the reasons for their classification. The results showed a list of the most important risks that would be generated if the BOT contract was applied to transportation projects in Iraq, as well as the appropriate planned response to each risk based on historical information for previous BOT projects.

Making BOT Model Great Again: Revisiting the BOT standard concessions and exploring the expectations

Build-Operate-Transfer (BOT) model of public-private partnerships (PPPs) are among the most popular infrastructure delivery models used by governments across the globe. Yet, concession agreements are criticized for being dispute prone. This study identifies a few areas where BOT projects are often challenged and proposes further interventions. Interviews with the private developers and the transactions advisory provided the necessary evidence for exploring the expectations of revising the BOT Concessions. The study found interventions that the private sector stakeholders suggest. These interventions span over the procurement, construction, and operation phases of the infrastructure delivery and are argued to build a rubber wall that can absorb the impacts of risk events. The suggested interventions would be helpful to policymakers to understand the prevailing challenges and expectations of the private sector developers. Future BOT concessions can be less dispute prone by deliberating and effectuating a mutually beneficial bargaining power. This study did not focus on the public sector perspective and their challenges for not considering these alternatives. Future studies need to expand to make the results more amicable and implementable. BOT concession model is popular but ever evolving. This study challenges the status quo by identifying a few challenges to be considered for increasing its effectiveness.

Identification and Evaluation of Risks Encountered in BOT Type Transportation Projects in Turkey: Case Studies

Yap-İşlet-Devret modeli (YİD) ile kamu hizmetlerinin sağlanmasında dünyada öncü ülkelerden olan Türkiye’de, giderek artan kentsel nüfusa bağlı olarak özellikle ulaştırma yatırımlarına olan ihtiyaç artmaktadır. YİD modelleri, bünyesinde projenin başarısını etkileyen çok sayıda riski barındırmaktadır. Bu risklerin tanımlanması; tanımlanan risklere yönelik yanıtların geliştirilerek doğru risk paylaşımlarının yapılabilmesi için önem arz etmektedir. Çalışmada, Türkiye’de YİD modeliyle gerçekleştirilmiş üç güncel ulaştırma projesinde karşılaşılan risklerin tanımlanması ve tartışılması amaçlanmıştır. Çalışmanın sonucunda; üç projede ortak olarak, finansman temini ile ilgili ve fizibilite çalışmalarının yetersizliğinden kaynaklanan problemler nedeniyle projelerin kapsamında ve tarafların risk paylaşımlarında değişikliklere gitmek durumunda kalındığı anlaşılmıştır. Yaşanan problemlere rağmen projelerin kararlılıkla hayata geçirilmesi, ülkede YİD projelerine yönelik güçlü bir politik desteğin olduğunu göstermektedir. Ancak, YİD projeleri için en kritik risk faktörü olan “öngörülen piyasa talebine ulaşılamaması”, bu projelerde de söz konusu olmuştur. Yol projelerinde, geçiş ücretleri ve farklı alternatiflerin bulunması talebi etkilemiş olup; projeler tamamlandıktan kısa süre sonra ortaya çıkan Covid-19 salgınına bağlı dünya genelindeki kapanmaların, beklenen gelirlerin sağlanamamasının esas nedeni olduğu düşünülmektedir. Türkiye’deki YİD ulaştırma projelerinin fizibilite aşamasında çevresel, teknik ve ekonomik açılardan kapsamlı olarak değerlendirilmesi; yapım ve işletme süresince karşılaşılan problemlerin minimuma indirilmesinde temel teşkil etmektedir.

Case Study on National Highway Construction Using Bot

Abstract: The public-private partnership (PPP) models that have been used in procuring the National Highways projects include Build- Operate-Transfer (BOT) (Toll) and BOT (Annuity) models.... This paper focuses on the various approaches that have been used for financing of PPP road projects in India. To assess the risks involved in BOT PROJECT by studying a specific case of Implementation of integrated road development program me (IRDP) in the city on built, operate & transport (BOT) basis. To Study the individualistic approach of the involved parties. BOT has been one of the recent innovations in project finance. The Build-Operate Transfer (BOT) scheme is a limited recourse financing technique. Many have adopted this approach as an alternative to traditional public financing for infrastructure development projects. This study examines the type of SOCIAL risk due to, force shutdown of toll booths due to public riots. This paper mainly representing the risk in BOT due to political & public pressure. A case study of IRDP project implemented in municipal corporation area through BOT is studied in details. Keywords: BOT, Public private partnership, lumpsum, concessionaire's

Evaluating risk factors of build-operate-transfer highway projects in Nigeria

Build-Operate-Transfer (BOT) has been one of the preferred models of Public–Private Partnership (PPP) for attracting private finance in the Nigerian highway sector. This paper evaluates the risk factors in the Nigerian highway sector with a view to identify significant risks and drawing the attention of the stakeholders on the need to focus attention on these risks. The population for this study includes major stakeholders such as: public sector organizations (government agencies) especially those in charge of BOT/PPP projects, highway engineers, quantity surveyors, concessionaires, registered contractors and selected financial institutions who have participated in BOT projects in Lagos and Abuja, Nigeria. The list obtained from Infrastructure Concession and Regulatory Commission showed that one hundred and fifty (150) experts fall into this category in which a sample size of one hundred and ten (110) was determined. The study adopted stratified random sampling technique. One hundred and ten (110) questionnaires were administered to respondents, 72 questionnaires were valid and used for the analysis. Out of the seventy (70) risks identified, twenty-one (21) risks were rated significant by the respondents, but the most significant risk factor is interest rate volatility. Others are geotechnical conditions, exchange rate fluctuations, interest rate volatility, high cost of finance, and corruption risk and respect for rule of law etc. Majority of the significant risk factors are economy related. However, there was agreement in the rating of the respondents. The paper concluded that stakeholders should concentrate efforts on these significant risk factors to improve the BOT highway sector which has performed below expectation.

Risk Management in the Malaysian Build Operate Transfer Projects

In Malaysia, Public Private Partnership (PPP) is one of the tools to develop infrastructure. Although, there are various forms of PPP projects but Build Operate and Transfer (BOT) is commonly used in infrastructural projects. Despite, the benefits of adopting PPP, there are a few issues that require focus of the practitioners and researchers such as; risk management in PPP projects. Therefore, this study describes the process of risk management in Malaysian BOT Projects as this PPP arrangement is applied in infrastructure development. The study has employed the exploratory sequential research method to achieve the objective. The results of the study concludes that most of the extreme risks are allocated to SPV thus selection of SPV is crucial for BOT projects.

Modeling ceiling price for build-operate-transfer road projects in developing countries

This study examines a ceiling price for build-operate-transfer (BOT) road projects in the context of developing countries. Although ceiling price is one of the most significant elements in BOT policy given that it has a focal-point effect, it has been rarely examined in prior studies. Subsequently, the study formulates a model of ceiling price under the framework of simple two-route network by integrating the nature of travelers' mode choice with the interaction between stakeholders through the Nash equilibrium as well as a risk-mitigation approach in the ceiling price decision-making process. The proposed model has unique characteristics that allow the government to protect social welfare while still providing opportunities for private investors to achieve their optimal toll rates. It also provides room to the government for negotiating with private investors while taking into account travelers' benefits and risk identification. The model is applied to a case study in Hanoi, Vietnam; and successfully showed its applicability with empirical evidences. The proposed method highlights planning aspects rather than road users’ aspect, which is expected to contribute to a project preparation stage in BOT projects.

Lecturer

The purpose of this study was to investigate the effects of Environmental factors on financing BOT( Build Operate Transfer) infrastructure projects, Infrastructure plays a crucial role in the drive for achieving development by providing energy, transportation, and water. There have been ups and downs in the degree of emphasis placed on infrastructure, but infrastructure has remained the largest component of the public investment programs in developing countries 62 % of gross domestic product (GDP). Nearly half of the international financial institutions’ project lending to developing countries goes to infrastructure. The study used a mixed method research design; with a target population of 720 employees of rift valley rail consortium and government of Kenya representatives of which a sample of 338. The study used questionnaires and interview guides to collect data. Data were collected by administering questionnaires to the respondents while senior managers and government officials were interviewed. Data collected was coded. Qualitative data was analyzed using themes and sub-themes, while quantitative data was analyzed by the use of inferential statistics, of which the frequency percentages were calculated, data were cross-tabulated to establish the relationship within the variables and finally, a Wald test statistic was conducted to measure the strength and direction of relationship within the variables. A calculated Pearson Chi-Square of 0.818 lead to rejection of the null hypothesis and therefore, there is a significant relationship between Environmental antecedents and financing of BOT projects. The study recommended that there is a need for policies to be articulated on tackling the rise of environmental destruction due to the BOT projects in Kenya.

Determining a reasonable concession period for risky transportation BOT projects with government subsidies based on cumulative prospect theory

PurposeThis paper explores the impact of both government subsidies and decision makers' loss-averse behavior on the determination of transportation build-operate-transfer (BOT) concession periods based on cumulative prospect theory (CPT). The prospect value of a transportation project under traffic risk can be formulated according to the value function for gains and losses and the decision weight for gains and losses. As an extra income for investors, government subsidy is designed for highly risky aspects of BOT transportation projects: uncertain initial traffic volumes and fluctuating growth rates.Design/methodology/approachA decision-making model determining the concession period of a transportation BOT project is proposed by using the Monte-Carlo simulation method based on CPT, and the effects of risky behaviors of private investors on concession period decision making are analyzed. A subsidy method related to the internal rate-of-return (IRR) corresponding to a specific initial traffic volume and growth rate is proposed. The case of an actual BOT highway project is examined to illustrate how the method proposed can be used to determine the concession period of a transportation BOT project considering decision makers' loss-averse behavior and government subsidy. Contingency analysis is discussed to cope with possible misestimating of key factors such as initial traffic volume and cost coefficients. Sensitivity analysis is employed to investigate the impact of CPT parameters on the concession period decisions. An actual BOT case which failed to attract private capital is introduced to show the practical application. The results are then interpreted to conclude this paper.FindingsBased on comparisons drawn between a concession period decision-making model considering the psychological behaviors of decision makers and a model not considering them, the authors conclude that the concession period based on CPT is distinctly different from that of the loss-neutral model. The concession period based on CPT is longer than the loss-neutral concession period. That is, loss-averse private investors tend to ask for long concession periods to make up for losses they will face in the future. Government subsidies serve as extra income for investors, allowing appointed profits to be secured sooner. For the benefit side of contingency variables, the normal state of initial traffic volume, average annual traffic growth rate and bias degree and the government subsidy need to be paid close attention during the project life span. For the cost side of contingency variables, the annual operating cost variable has a significant impact on the length of predicted concession period, while the large-scale cost variable has minor impact.Originality/valueWith an actual BOT highway project, the determination of transportation BOT concession periods based on the psychological behaviors of decision makers is analyzed in this paper. As the psychological behaviors of decision makers heavily impact the decision-making process, the authors analyze their impacts on concession period decision making. Government subsidy is specifically designed for various states of initial traffic volume and fluctuating growth rates to cope with corresponding high risks and mitigate private investors' loss-averse behaviors. Contingency analysis and sensitivity analysis are discussed as the estimated values of parameters may not be authentic in actual situations.

Analysis of road capacity and franchise price decision delegation in toll road BOT project

This paper studies four Build-Operate-Transfer (BOT) models that the government is a leader, and the private sector is a follower. They decide road capacity and franchise price either jointly or sequentially. We find that both the government and the private sector prefer to decide the franchise price. Social welfare can be maximized if the government decides the price, and the private sector decides capacity. We further find that the private sector does not always prefer a more extended franchise period, and the profit of the private sector is concave in the length of the concession period. Nevertheless, the government prefers a more extended concession period because of the inefficient operation cost.

Development of a conceptual life cycle performance measurement system for build–operate–transfer (BOT) projects

PurposeThe purpose of this paper is to develop a new conceptual life cycle performance measurement system (PMS) based on stage level key performance indicators (KPIs) to measure the performance of build–operate–transfer (BOT) projects.Design/methodology/approachThis study uses a literature review to reveal the deficiencies of existing PMSs for public–private partnership (PPP) projects. Based on these deficiencies, four recommendations were proposed for developing a PMS. The validation of these recommendations was performed via focus group discussion sessions conducted with 12 experts. Then, a conceptual framework was developed based on the validated recommendations and the additional recommendations emerged during focus group discussions. Finally, the recommendations proposed by the focus group were tested by a questionnaire survey, the findings of the Friedman test and descriptive analysis validated these recommendations.FindingsFindings of the focus group discussion, Friedman test and descriptive analysis indicated that the PMS should have four crucial features to develop an efficient, effective and comprehensible PMS for the BOT project. Firstly, non-financial and financial KPIs should be integrated. Secondly, the PMS should be developed as a process-based system with stage level KPIs. The performance of the BOT projects should be monitored and reviewed continuously, however the most important KPIs should be used for continuous performance measurement to increase the applicability of the system and allocate the resources more efficiently.Research limitations/implicationsThis survey was conducted on experts who have experience with BOT projects located in Turkey, therefore, judgments of experts might be affected by external factors specific to Turkey such as geopolitical situations, investment environment. However, due to the nature of BOT projects, the experience of experts can also be utilized at the international level.Originality/valueThis is the first time a PMS has been developed to measure the performance of a BOT project. In addition, this system has unique features when compared with the PMS proposed in the literature. Especially, the stage level KPIs and continuous performance measurement with the most important KPIs throughout each stage has never been used. This research provides both public sector and private entities with an insight into effectively measure, control and manage their BOT infrastructure projects' performances throughout their life cycles.

Identification and prioritization of stage-level KPIs for BOT projects – evidence from Turkey

PurposeThe purpose of this paper is to identify and prioritize key performance indicators (KPIs) that can be used for stage-based performance assessment of build-operate-transfer (BOT) projects.Design/methodology/approachThis research was conducted through focus group discussions and face-to-face questionnaires. Firstly, stage-level KPIs for BOT projects were identified by conducting a literature survey. The list of KPIs that can be used for measuring performance at different stages of a BOT project was finalized by conducting focus group discussions with 12 participants. The data related to the importance of identified KPIs were collected via a face-to-face questionnaire in which 30 high-level managers participated. Based on these data, KPIs were prioritized considering eight different stages of a BOT project by using Technique for Order of Preference by Similarity to Ideal Solution (TOPSIS).FindingsThe research findings reveal that 63 stage-level KPIs can be used for measuring the performance of BOT projects at eight different stages, which are “feasibility study and preliminary plan,” “announcement and submission of application,” “evaluation and selection,” “negotiation and signing of concession agreement,” “design,” “construction,” “operation” and “transfer.” The most important KPIs were determined as “comprehensiveness of project technical feasibility,” “detailed tendering procedure,” “effectiveness of concessionaires' technical knowledge/capability evaluation,” “good relationships between government and concessionaire,” “technology transfer,” “effectiveness of quality control,” “effectiveness of facility management” and “effectiveness of hand-back management” for each stage. The findings can be used by companies to evaluate performance at each stage of a BOT project and, if necessary, take the necessary actions for performance improvement at the stage level.Research limitations/implicationsThe main limitation is the size of the sample, which represents the perspectives of 30 Turkish high-level managers on KPIs in BOT projects. Besides, the selected method, namely, TOPSIS, does not provide quality measures related to the outputs; therefore, it is difficult to see the inconsistencies among the experts.Practical implicationsThe study findings will help in devising appropriate performance evaluation practices for BOT projects to overcome the shortfalls of the existing practices and systems proposed in the literature and help in achieving the superior performance while developing infrastructure through the BOT route.Originality/valueThis paper proposes a process-based approach for measuring the performance of a BOT project considering eight different stages. It fills a research gap in the public–private partnership literature by focusing on stages rather than phases. The results can be used by practitioners to establish stage-level performance management systems for BOT projects.

BOT (build-operate-transfer/izgradi-koristi-predaj) projekti kao uspešan model javno-privatnog partnerstva

The paper examines the BOT (build-operate-transfer) projects as a viable model of public-private partnership. Its purpose is to reveal their conceptual framework, evolution, modern interpretations and implementation benefits. In view of the current economic realities of global financial deficit there are budget constraints at all levels of government in every country. The BOT projects can be considered as an alternative strategy for solving the financial and social problems of each government. They are a popular instrument of modernizing the transport infrastructure, energy sector, telecommunications, water supply, preserving of environment, etc.

Financial conflict resolution model in BOT contracts using bargaining game theory

Purpose This study aims to determine the optimal value of concession period length in combination with capital structure in build–operate–transfer (BOT) contracts, based on direct negotiation procurement and considering the conflicting financial interests of different parties involved in the project. Design/methodology/approach The financial model of a BOT project is developed considering all the influencing factors. Then, fuzzy set theory is used to take into account the existing risks and uncertainties. Bilateral bargaining game based on alternating-offers protocol is applied between the government and the sponsor to divide project financial benefit considering the lender’s requirements. Finally, concession period and equity level will be determined simultaneously according to the sponsor’s and government’s share of project financial benefit and the lender’s requirements. Findings The proposed model is implemented on a real case study, and a fair and efficient agreement on concession period length and capital structure is achieved between the government and the sponsor considering the lender’s requirements. It is revealed that being the first proposer in the bargaining process will affect the concession period length; however, it will not affect the equity level. Moreover, it is shown that considering income tax as a part of government’s financial benefit increases the length of concession period. Research limitations/implications The presented model concentrates on direct negotiation procurement in BOT projects where the sponsor and government bargain on dividing financial benefits of project. It is assumed that the product/service price is determined before according to market analysis or users’ affordability. All the revenue of project during concession period is assumed to belong to the sponsor. Practical implications The proposed model provides a practical tool to aid BOT participants to reach a fair and efficient agreement on concession period and capital structure. This could prevent failing or prolonging the negotiation and costly renegotiation. Originality/value By investigation of previous studies, it is revealed that none of them can determine the optimal value of concession period length and capital structure simultaneously considering the BOT negotiation process and different financial interests of parties involved in the project. The proposed model presents a new approach to determine the financial variables considering the conflicting interests of involved parties. The other novelty aspects of the presented model are as follows: introducing a new approach for calculating the sponsor and the government’s share of project financial benefit that will affect the determination of the concession period length and considering the effect of existing risks and uncertainties on final agreement between the involved parties using fuzzy set theory.

Design of build-operate-transfer contract for integrated rail and property development with uncertainty in future urban population

This paper proposes a novel model of the design of a build-operate-transfer (BOT) contract for integrated rail and property (R + P) development when the size of future urban population is uncertain. A real-option approach is adopted to accurately capture the potential economic value of a BOT investment project under uncertainty and its externality effects on urban spatial structure. The proposed model is formulated as a two-stage problem. The first stage of the model optimizes the concession period and rail line parameters (including rail line length, and number and locations of stations) through a Nash bargaining game between a private investor and the government. The second stage determines the headways and fares during the private operation and after transferring the BOT project to the government. The private investor's objective is to maximize its own net profit received during the concession period, whereas the government aims to maximize social welfare over the whole life-cycle of the project. The proposed model is extended to explore the effects of future population jumps due to non-recurrent random events and station deployments with even and uneven station spacings. The results show that compared with the rail-only scheme, the R + P scheme can lead to a win-win situation for the government and private investor. In the BOT contract design, ignoring the effects of population jumps and using an average (or even) station spacing as an estimate of actual station deployment can cause a large bias of the parameter values designed in the contract and an underestimate of project values in terms of expected net profit and expected social welfare.

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

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.