Search

This study examines three investment methodologies for renewable energy projects: 1) leveled electricity cost, 2) discounted cash flow with Monte Carlo and value at risk (VaR) simulations, and 3) real-world scenarios. Two investment strategies are evaluated: 1) investment without tax incentives, without financing, and with an assets depreciation of over 10 years, and 2) the same conditions as 1), but with tax incentives. A sensitivity analysis is performed to assess the impact of depreciation rate variation and debt percentage on the initial outcomes. The results show that levelized photovoltaic solar electricity and wind costs are 5.1 ¢USD/kWh and 4.8 ¢USD/kWh respectively. There is a reduction of 44% and 39%, respectively, when tax incentives consider assets depreciation to 10 years, 100% debt percentage, and 6% interest rate E.A (discount rate). It is concluded that the LCOE (levelized cost of energy) methodology can be combined with other investment assessment methodologies such as discounted cash flow with Monte Carlo and VaR simulations. [ABSTRACT FROM AUTHOR]

This research focuses on valuing an investment project through the Theory of Real Options Games (ROG), this approach allows extending the standard valuation analysis including flexibility and uncertainty scenarios in market structures such as monopoly and oligopoly, given the importance of making decision in investment projects, there is a need to identify strategies with tools to overcome the limitations of traditional methods based on the discounted cash flow model (DCF), analysing the impact that may exist on investment when incorporating the actions of other market participants. [ABSTRACT FROM AUTHOR]

The aim of this paper is to summarize exhaustively and concisely, the different methodologies for estimating the volatility that has been proposed for the real options approach (ROA), and also provide a theoretical and practical explanation for estimating an unbiased volatility and unconditional for this methodology. The results of the research suggest that the use of the current methods generates a marked overestimation of the volatility, which is ultimately transmitted in the overvaluation of the real option. In this way, the application of the unbiased estimation method is used to determine its impact on decision-making for a real project in the oil and gas sector in Colombia, in which its strategic value was estimated through the use of real options, and it was compared with the static result obtained by the method of discounted cash flows (DCF); as a result it was found that, it is generated an additional value not perceived by the traditional methodology, that is consistent with the respective volatility that was generated by the commodity. It is proposed that for future research, unbiasedness condition is maintained, but that the estimate is conditional through econometric models, in order to emulate the irregularities and empirical characteristics presented in the financial series using, for example, an appropriate system of stochastic differential equations, as required condition for the performance of price, and the volatility of the underlying asset. [ABSTRACT FROM AUTHOR]

The early termination of Public-Private Partnerships (ppp) usually occurs at any time during the life of the project, causing large costs for the parties. Specifically, the toll road concessions are exposed to high demand risk. Usually, highway concession contracts incorporate a compensation mechanism in case of early termination. However, the traditional techniques of the Discounted Cash Flow (dcf) used to value infrastructure projects do not capture the irreversibility of the investment, the uncertainty and the mechanisms of compensation for risk that allow taking actions to the parties involved in a concession contract. The early termination of a toll road concession can be valued as the concessionaire's right to abandon the execution of the project. The objective of this document is to assess the mechanism of early termination of a toll road concession as a contingent asset, implementing the theory of real options, where the value of the abandonment option depends on the risk of demand. The valuation methodology is applied to a real case study of the Program of the Fourth Generation of Highway Concessions (4G) by Colombian Government. The valuation of early termination mechanisms can help to understand ex-ante the risks faced by the public and private parties of a highway concession contracts. [ABSTRACT FROM AUTHOR]

Different eolic energy project valuation methodologies were assessed for the Colombian case, namely the discounted cash flow and real option approaches, the latter applied by estimating option extended values and including a real expansion possibility. In order to estimate volatility, which is a fundamental real option valuation parameter, the prices of the factors most outstandingly affecting it, namely electric power and winds, were simulated. It is concluded that the projects in question would not be considered viable through traditional valuation methods, but their actual feasibility comes clear by applying the real option approach, all the more when taking into account current tax and other incentives such as Emission Reduction Certificates. [ABSTRACT FROM AUTHOR]

This present paper introduces those methods that are currently available for project assessment. It emphasises the limitations of the traditional methods, such as the Discounted Cash Flow Method, when being used to evaluate highly uncertain projects, where decision makers have the flexibility enough to change the course of the project to meet those changes that had taken place at the market early stages. Those models that are able to provide a more level-headed assessment for this kind of project - where uncertainty and flexibility have become key factors in the decision making process - have been distinguished and compared. As a solution to this, the application of Real Option Analysis procedure has been suggested to valuate projects, since traditional tools are not enough by themselves. This theory arises from the evaluation of financial assets and is currently being used for the assessment of investment related projects, the same way as it can be used in the case of financial assets. Decision about using the real option analysis as the model to be applied was reached after carrying out an extensive bibliographical compilation regarding this real option analysis theory, in turn written by several researchers during the last few years. This methodology is subjected to comparative analysis with respect to those Discounted Cash Flow and Decision Tree Analysis based models. The evaluation of a given project - by applying the three project evaluation methods: Black-Scholes, Monte Carlo Simulation and Binomial Trees - is introduced. Finally, an analysis of the project evaluation outcomes under the different models being applied, is carried out. [ABSTRACT FROM AUTHOR]

Para incorporar flexibilidad en la evaluación de proyectos de inversión existen hoy en día dos principales metodologías de evaluación que son el descuento de flujo dinámico y las opciones reales. Al analizar estas metodologías se determinó que los métodos tradicionales no incorporan flexibilidad. A excepción del descuento de flujo dinámico, que aunque trabaja con los mismos supuestos de lo demás incorpora la flexibilidad al trabajar con escenarios, el problema aquí es que esos escenarios permanecen estáticos durante el periodo de evaluación, pudiendo llevar a decisiones equivocadas al subvalorar los proyectos de inversión. En el caso del análisis de opciones reales esta metodología sí incorpora la flexibilidad en la evaluación, por lo que sería la más adecuada de utilizar en el caso de tener que trabajar en entornos con alta incertidumbre. En la actualidad se le reconoce a este método su aporte al pensamiento estratégico ya que cuando se utiliza esta metodología lo primero es determinar las opciones del proyecto para luego valorarlas, por lo que una equivocada determinación de las opciones llevará a una mala valoración. [ABSTRACT FROM AUTHOR]