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Abstract Promising growing conditions and favorable renewable energy policies make the western U.S. a potentially suitable region for dedicated woody biomass (DWB) plantations for energy generation. To support the regional development of biomass and biofuels markets, the USDA awarded an AFRI grant to the Advanced Hardwood Biofuels (AHB) Northwest project. As part of the AHB project, GreenWood Resources ("GWR") - a globally diversified timberland investment management company with over 20 years of specialized experience in high-yield, intensive plantation management - installed and managed hybrid poplar DWB plantations at four demonstration sites: Clarksburg, CA; Hayden, ID; Jefferson, OR; and Pilchuck, WA. GWR developed a discounted cash flow ("DCF") investment model based on the AHB project results and plantation management experience across this range of growing and market conditions. The model estimates financial returns and tests the sensitivity of returns to changes in key variables. These results inform directions for future research and challenges for commercial production of DWB. Results indicate that current market pricing for forest biomass in the western U.S. - approximately USD 46/BDMT - produces negative financial returns from DWB plantation investment on all four sites. To produce positive returns at all four sites requires biomass assumptions that are well above the current market (USD 121/BDMT). With this price assumption, plantation investment returns average 8.62% in real, inflation-adjusted terms across all sites, but this biomass price level may make conversion into transportation fuels uneconomic under current fuel prices and policies. Financial returns to DWB investments are most sensitive to changes in price, yield, and land costs. Given current economic conditions and plantation technology, the development of a large-scale DWB plantation base in the western U.S. is unlikely to attract private sector capital without some combination of a material increase in the biomass price, strong policy support, or a dramatic improvement in plantation yields. Highlights • Current pricing for biomass in western U.S. produces negative financial returns. • Biomass investments are unlikely to attract private-sector capital. • Returns are most sensitive to assumptions related to prices, yields, and land costs. • Increase in price or dramatic improvement in yields may change the present situation. [ABSTRACT FROM AUTHOR]

Highlights • We analyze the economic value of a U.S windfarm using long-term LCOE information. • Long-term LCOE of wind energy is obtained from two decades of history. • Monte Carlo and Risk-Neutral valuation is used to valuate a reference windfarm. • Managerial flexibilities and generation cost uncertainty make windfarms more valuable. • Real Option accounts for the flexibility of decision-making with stochastic costs. Abstract Renewable energies are a natural replacement for conventional or fossil fuel energy generation. One of these sources, wind energy, has exhibited significant cost reductions during the last decades. Even though this historical cost reduction trend is well known in the industry and in the academia, information on this cost trend and volatility has been scarcely incorporated in previous works, thus a natural concern arises when assessing their influence on the economic valuation of wind farms. Moreover, wind projects are modular in size and have a short time-to-market, providing a valuable managerial flexibility to defer investment under non-attractive market conditions, such as high development cost scenarios. Traditional evaluation tools often consider those scenarios, wrongly assuming that wind-developers would move forward with the project under such conditions. Accordingly, this paper analyzes the effect of incorporating both generation cost history and investment flexibility in the valuation of wind farms in the United States using Real Options methodology. Taking two decades of cost data and a reference wind farm, this "uncertainty-flexibility" effect is incorporated and valued, finding that the value of the wind project is 14.2% larger than the one neglecting such effect – where cost stochasticity and managerial flexibility are ignored. Therefore, traditional tools for project valuation, such as discounted cash flow and scenario analysis can no longer solely be used, as they do not properly account for the cost reduction trend, uncertainty, and managerial flexibility that a wind farm could face. [ABSTRACT FROM AUTHOR]

Discusses the value of real options theory for the telecommunications industry in the U.S. Use of discounted cash flow (DCF) method in project evaluation and investments; Application of real options methodology in DCF analysis; Implications of real options theory for policymakers.