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This theoretical paper presents a real options valuation method (SCV) based on Wiśniewski's concept, double Monte Carlo simulation (2MC). In this methodology, option valuation involves determining the difference between the average value of a project with an option and the average value of a project without option and is calculated using financial simulation models characterizing these investments. Calculated values of project with option and without depends on the input parameters (deterministic or/and stochastic), that are already used by managers. The real options valuation methodology is presented using a numerical example of a flexible investment. The analysis demonstrates the usefulness of the SCV method, especially in the early stages of investment implementation, for complex and multi-stage projects, and in the presence of multiple sources of risk, that can be easily modeled using market data. An additional conclusion from the paper is the difference between the values ​​of real options, determined using the SCV method, and the value of decision flexibility (2MC method), as well as their economic significance and their application in practice. [ABSTRACT FROM AUTHOR]

This paper reviews the basic issues involved in identifying and providing solutions to transport problems. The paper argues that solutions focusing solely on investment in capacity or second-best solutions to pricing such as road pricing and free public transport ignore the essential economic relationships involved in transport. The paper provides a critique of investment and pricing and argues for a more integrated approach in which optimal pricing is a core consideration in any investment decisions. This is seen as particularly important in a post Covid-19 world where many of the fundamental drivers of transport demand have changed, and public authorities face significant constraints on budgets whilst new pressures such as commitments to net zero in the face of global warming threats add additional pressures. The paper offers some thoughts on the principles involved in establishing a more suitable structure for dealing with the transport problem. • Identifies the core elements of the transport problem as pricing and investment. • Reviews problems in implementing first-best pricing. • Critiques investment decisions in the light of wider economic impacts. • Considers changes brought about by the Covid-19 pandemic and the move to net-zero. • Offers a set of principles for reforming transport policy. [ABSTRACT FROM AUTHOR]

• We describe crowding on-board and at stations based on automated transit data. • Travelers consider the influence of crowding on comfort and on walking speeds. • AA Dutch rail corridor with a rich set of passenger data is studied. • Pedestrian flows, densities and train car loads are well reproduced. • Applications include transit planning, crowding estimation, or disruption management. We present a transit model that, based on automated fare collection and train tracking data, describes pedestrian movements in train stations and vehicle-specific train ridership distributions. Our approach differs from existing models in that we describe on-board passenger dynamics and pedestrian dynamics at stations in a joint framework. We assume that travelers first decide on the train(s) they will take, and then pursue their journey through the network by successively choosing pedestrian paths, waiting positions on platforms, and specific train cars. Travelers explicitly maximize their travel utility. We model how crowding influences their walking speeds, and how it affects travel utility both at stations and on-board. To illustrate the framework, we present a real case study of a major Dutch rail corridor, for which we collect a rich set of passenger, pedestrian and train operation data. We observe a good agreement of model estimates with empirical observations, and discuss the use of the model for various transit-related problems including level-of-service assessment, crowding estimation, transit optimization, and integrated investment appraisal. [ABSTRACT FROM AUTHOR]

The rising cost of energy and concerns about the environmental impact of manufacturing processes have necessitated the need for more efficient and sustainable manufacturing. The ceramic industry is an energy intensive industrial sector and consequently the potential to improve energy efficiency is huge, particularly through the introduction of modern sintering technologies. Although several energy efficient sintering processes have been developed, there is no comprehensive techno-economic analysis which compares and contrasts these techniques. This paper presents a critical review and analysis of a number of sintering techniques and compares them with the recently developed cold sintering process (CSP), including mode of operation, sintering mechanism, typical heating rates, duration of sintering, energy consumption profile and energy saving potential, limitations, key challenges for further development and current research efforts. By using a figure of merit, pounds per tonne of CO 2 saved (£/tCO 2 -eq), which links initial capital investment with energy savings, within a framework derived from ranking principles such as marginal abatement cost curves and Pareto optimisation, we have demonstrated that under the scenarios considered for 3 separate functional oxides ZnO, PZT and BaTiO 3 , CSP is the most economically attractive sintering option, indicating lower capital costs and best return on investment as well as considerable energy and emission savings. Although the current work establishes the viability of CSP as a competitive and sustainable alternative to other sintering techniques, the transition from laboratory to industry of CSP will require hugely different facilities and instrumentation as well as relevant property/performance validation to realise its full potential. [ABSTRACT FROM AUTHOR]

Meeting electricity demand with renewable generation requires spending trillions of dollars in investments exposed to financial risk. Renewable projects have multiple strategic real options to manage investment risk, but they are usually priced separately in isolation. This paper proposes a framework for valuing multistage decisions in a grid-scale photovoltaic (PV) power plant under uncertainty. The project is modelled as a compound portfolio of American sequential and mutually exclusive options to defer, expand and relocate. The compound options are jointly priced by a hierarchically nested least-squares Monte Carlo algorithm. The framework incorporates uncertainties related to decreasing costs in solar technology and the emergence of more profitable renewable tariffs elsewhere. The results show that the value of the compound option portfolio significantly exceeds the value of the single deferral option commonly considered in practice. Ignoring expansion and relocation flexibilities may lead to underinvestment by mispricing the value of PV projects. Incorporating these options encourages early commitment of the PV investment. Moreover, summation of individual option prices may not be a good approximation of the true portfolio value, as interactions among options exist. These findings may improve allocation efficiency of renewable investments, accelerate energy transition and benefit investors, funding agencies and regulators. [Display omitted] [ABSTRACT FROM AUTHOR]

Traditional methods of investment appraisal have been criticized in the context of climate change adaptation. Economic assessment of adaptation options needs to explicitly incorporate the uncertainty of future climate conditions and should recognise that uncertainties may diminish over time as a result of improved understanding and learning. Real options analysis (ROA) is an appraisal tool developed to incorporate concepts of flexibility and learning that relies on probabilistic data to characterise uncertainties. It is also a relatively resource-intensive decision support tool. We test whether, and to what extent, learning can result from the use of successive generations of real life climate scenarios, and how non-probabilistic uncertainties can be handled through adapting the principles of ROA in coastal economic adaptation decisions. Using a relatively simple form of ROA on a vulnerable piece of coastal rail infrastructure in the United Kingdom, and two successive UK climate assessments, we estimate the values associated with utilising up-dated information on sea-level rise. The value of learning can be compared to the capital cost of adaptation investment, and may be used to illustrate the potential scale of the value of learning in coastal protection, and other adaptation contexts. [ABSTRACT FROM AUTHOR]

Ever stricter emission regulations stimulate vessel owners to consider the adoption of alternative marine fuels, such as Liquefied Natural Gas (LNG). In deciding whether to invest in LNG-fueled vessels, initial investment and operating costs are decisive factors that have not yet been fully studied in the literature. In this paper, we present a new investment appraisal method to compare the costs of LNG-fueled vessels with conventional vessels. We analyze the fuel costs and overall exploitation costs by simulating bunker planning decisions under stochastic fuel prices, presence in emission controlled areas, and route lengths. Our analyses reveal that the fuel costs of LNG-fueled vessels are often lower than those of conventional vessels, even under unfavorable LNG prices. Due to the higher initial investment costs in LNG-fueled vessels, these fuel cost reductions do not always translate into lower overall exploitation costs. By conducting numerical experiments, we identified conditions under which the exploitation costs of LNG-fueled vessels are lower than conventional vessels. [ABSTRACT FROM AUTHOR]

Deep decarbonisation of the electricity sector is central to achieving the United Kingdom’s (UK) climate policy targets for 2050 and meeting its international commitments under the Paris Agreement. While the overall strategy for decarbonising the energy system has been well established in previous studies, there remain deep uncertainties around the total investment cost requirements for the power system. The future of the power system is of critical importance because low carbon electricity may create significant opportunities for emissions reduction in buildings and transport. A key policy application of quantitative analysis using models is to explore how much investment needs to be mobilised for the energy transition. However, past estimates of energy transition costs for the UK power sector have focused only on 2030 rather than 2050 and consider a relatively narrow range of uncertainties. This paper addresses this important research gap. The UK government's main whole system energy economy model is linked to a power system model that employs an advanced approach to uncertainty analysis, combining Monte Carlo simulation with Modelling-to-Generate Alternatives (MGA), producing 800 different scenario pathways. These pathways simultaneously consider uncertainties in policy, technology and costs. The results show that with No Climate Policy , installed generation capacities in 2050 are found in the range 60–75 GW, while under an 80% Reduction in GHG Emissions , between 100 GW and 130 GW of plant are required. Meeting climate targets for 2050 is also found to increase the investment requirements for new electricity generation. The interquartile range for cumulative investments in new generation under the No Climate Policy scenario ranges from £60bn to £75bn, while under an 80% Reduction in GHG Emissions , investment requirements approximately double to £110bn - £140bn. The exercise demonstrates the importance of uncertainty analysis to policy evaluation, yielding insights for future research practice both in the UK and internationally. [ABSTRACT FROM AUTHOR]

With regards to the strategic role of transport in a country's economic development and the large investments that are required, a thorough economic appraisal of these investments is of high importance. Therefore, it is appropriate to analyze and possibly modify existing methods for evaluating the economic efficiency of road construction at the scientific level, with the support of the real practice experience. Our research concentrates on evaluation of current methods of economic appraisal, their consecutive improvement and on incorporation of the LCCA agenda into the investment decision process. Consequently, it focuses on the possibilities to improve the effectivity of both, an investment decision process and a realization phase through the proposal of very concrete measures based on results of our research and on experience of real practice construction. [ABSTRACT FROM AUTHOR]

Hydropower investments have been subject to intense criticism over environmental issues and the common experience with cost uncertainty. In this study we address the issue of uncertainty in cost projections by applying reference class forecasting (RCF) in order to improve the reliability of costs used for making decisions under uncertainty. This technique makes it possible to closely link contingency estimates to the likely incidence of uncertainty of construction costs for hydroelectric dams. A case study, the Bujagali dam in Uganda, is used to demonstrate how investment appraisal can be enhanced to better account for the risk of cost overruns. While this project has suffered from cost overruns, the net benefits of the dam are still expected to be substantial. We conclude that if historical information from the major financiers of dams is accessible, learning from the past can help to reduce the cost of uncertainty in power planning worldwide. [ABSTRACT FROM AUTHOR]

The increasing penetration of variable renewable energy is becoming a key challenge for the management of the electrical grid. Electrical Energy Storage Systems (ESS) are one of the most suitable solutions to increase the flexibility and resilience of the electrical system. This paper presents an innovative methodology for the appraisal of the investment in ESS. The methodology is based on the Real Option Analysis and is able to properly consider investment risks and uncertainties as well as the options available for the investor. The paper assesses the value of the option to wait for a change in the market conditions before investing and re-evaluates the profitability of the investment after each step of the development of the ESS project. In order to exemplify relevant results, this method is applied to the UK energy market and assesses the technical and economic feasibility of investing in ESS operating price arbitrage and Short Term Operating Reserves. The results show that the implementation of the Real Option Analysis increases the economic performance of ESS. Nevertheless, ESS still requires limited incentives to be economically viable. [ABSTRACT FROM AUTHOR]

Many towns and cities in countries of the developing world contain a historic centre comprising streets, buildings and traditional activities that have resisted the forces of modernisation. However, the inexorable pressures of population growth and urban expansion often pose a serious threat to these heritage assets which are seen as standing in the way of progress. This paper considers the application of the principles and methods of heritage economics to the evaluation of investment in the conservation of urban heritage in towns and cities in developing countries. The characteristics of cultural heritage in this environment are considered and the choices facing urban planners are discussed. The paper outlines the methodology of investment appraisal of projects aimed at adaptive re-use of urban heritage assets, with specific reference to the scarcity of appropriate data in the typical developing country situation. To illustrate the application of ex post investment appraisal methods to urban heritage conservation projects in Third World cities, two examples from studies in Macedonia and Jordan are discussed. [ABSTRACT FROM AUTHOR]

Risk management is an important component of project management. Nevertheless, such process begins with risk assessment and evaluation. In this research project, a detailed analysis of the methodologies used to treat risks in investment projects adopted by the Banco da Amazonia S.A. was made. Investment projects submitted to the FNO (Constitutional Fund for Financing the North) during 2011 and 2012 were considered for that purpose. It was found that the evaluators of this credit institution use multiple indicators for risk assessment which assume a central role in terms of decision-making and contribute for the approval or the rejection of the submitted projects; namely, the proven ability to pay, the financial records of project promotors, several financial restrictions, level of equity, level of financial indebtedness, evidence of the existence of a consumer market, the proven experience of the partners/owners in the business, environmental aspects, etc. Furthermore, the bank has technological systems to support the risk assessment process, an internal communication system and a unique system for the management of operational risk. [ABSTRACT FROM AUTHOR]

Material Flow Cost Accounting (MFCA) is an instrument with a considerable potential for gaining transparency of material (and energy) flows and corresponding costs and, thereby, supporting the systematic striving for a higher degree of resource efficiency. However, a use case from the aluminum industry reveals some restrictions of MFCA due to its focus on material, the input-orientation, and the short-term orientation. Thus, this paper suggests extending the scope of Material Flow Cost Accounting by methodical refinements concerning the modeling of energy flows, divergent flow system outputs, especially revenues, and long-term monetary effects caused by investments. For demonstrating these methodical refinements of Material Flow Cost Accounting, the aforementioned use case is taken up. [ABSTRACT FROM AUTHOR]

The aim of this paper is to present a method and a tool based on cost-effectiveness analysis (CEA) for assessing energy efficiency improvements in buildings. The method is based on comparing costs of an energy efficiency improvement with its effects in terms of reduced energy use.Ashort review of the current practices in evaluating the economic efficiency and feasibility of energy efficiency measures is presented.A case example is presented with a calculationby using a CEA calculation method adapted for energy efficiency improvements in buildings.It is here concluded that the systematic appraisal of cost-effectiveness of energy efficiency investments would allow most economical projects to be implemented first, leading to greater overall economic efficiency. [ABSTRACT FROM AUTHOR]

Abstract: The study assessed the economic efficiency of different strategies for the control of post-weaning multi-systemic wasting syndrome (PMWS) and porcine circovirus type 2 subclinical infection (PCV2SI), which have a major economic impact on the pig farming industry worldwide. The control strategies investigated consisted on the combination of up to 5 different control measures. The control measures considered were: (1) PCV2 vaccination of piglets (vac); (2) ensuring age adjusted diet for growers (diets); (3) reduction of stocking density (stock); (4) improvement of biosecurity measures (bios); and (5) total depopulation and repopulation of the farm for the elimination of other major pathogens (DPRP). A model was developed to simulate 5 years production of a pig farm with a 3-weekly batch system and with 100 sows. A PMWS/PCV2SI disease and economic model, based on PMWS severity scores, was linked to the production model in order to assess disease losses. This PMWS severity scores depends on the combination post-weaning mortality, PMWS morbidity in younger pigs and proportion of PCV2 infected pigs observed on farms. The economic analysis investigated eleven different farm scenarios, depending on the number of risk factors present before the intervention. For each strategy, an investment appraisal assessed the extra costs and benefits of reducing a given PMWS severity score to the average score of a slightly affected farm. The net present value obtained for each strategy was then multiplied by the corresponding probability of success to obtain an expected value. A stochastic simulation was performed to account for uncertainty and variability. For moderately affected farms PCV2 vaccination alone was the most cost-efficient strategy, but for highly affected farms it was either PCV2 vaccination alone or in combination with biosecurity measures, with the marginal profitability between ‘vac’ and ‘vac+bios’ being small. Other strategies such as ‘diets’, ‘vac+diets’ and ‘bios+diets’ were frequently identified as the second or third best strategy. The mean expected values of the best strategy for a moderately and a highly affected farm were £14,739 and £57,648 after 5 years, respectively. This is the first study to compare economic efficiency of control strategies for PMWS and PCV2SI. The results demonstrate the economic value of PCV2 vaccination, and highlight that on highly affected farms biosecurity measures are required to achieve optimal profitability. The model developed has potential as a farm-level decision support tool for the control of this economically important syndrome. [Copyright &y& Elsevier]

Abstract: In this study, investment appraisal techniques and risk analysis methods are evaluated and a new simulation-based computer program developed for helping investment appraisal applications for natural building stone deposits is introduced. Finally, case study and its results are presented. The study proved that simulation programs can be used for decision making concerning potential investments in NBS deposits. [Copyright &y& Elsevier]

Abstract: Serbian government has recently introduced the system of feed-in tariffs for electricity generated from renewable sources. The proposed feed-in tariff for photovoltaic electricity is set to 0.23€/kWh paid for 12 years, with the PV electricity produced after the first 12 years being sold at the grid electricity market price for the rest of the plant lifetime. Although such FIT could have been justified by the small, average retail grid electricity price of just 0.054€/kWh for Serbian households, the investment appraisal of a real case of 2.82kWp PV power plant in two Serbian cities of Zlatibor and Negotin, clearly illustrates that the proposed FIT framework is not sufficient to attract investments into PV in Serbia. In the second part of the paper, we have analyzed alternative, more reasonable feed-in tarrif frameworks, with the goal of selecting those able to sustain the PV adoption and diffusion in Serbia. [Copyright &y& Elsevier]

Abstract: The Capital Asset Pricing Model (CAPM) is a useful tool in the estimation of the equity cost in the cost of capital computation. This work proposes a method to limit problems arising from the CAPM assumptions. The main tools are the possibilistic mean and the possibilistic variance/covariance of fuzzy numbers as they are introduced by Carlsson and Fullér (2001) . The results of this method are a possibilistic CAPM beta value and a possibilistic value for the market premium. These values lead to a possibilistic set-up of CAPM and then to the computation of the after tax Weighted Average Cost of Capital (WACC). The data for this work is fuzzy and derives from experts in investments and specialists in “deciphering” the information flowing from financial markets. Finally, a computational algorithm of five steps and a numerical example are presented for thorough comprehension of the proposed method. [Copyright &y& Elsevier]

Abstract: PPP contracts most often have durations of between 20 and 35 years, but in some cases even longer. The main reason for this is the wish of the Public side to minimize its financial contribution, by including in the contract many years of revenue generation by the project to help cover the investment contribution of the private partner. Implicit however is the need to fully amortize the initial investment, which in many countries is even included in the relevant legislation. PPP contracts are normally framed around the delivery of a range of services during the lifetime of the contract, those services requiring the initial construction or recovery of an expensive infrastructure. The specification of the financial clauses of the contract requires the estimation of demand for those services over the period of the contract and this is usually taken as the major incidence of uncertainty in the contract. Indeed, experience shows that demand forecasts often fail substantially, in many cases by more than 20%, mostly by excess, as State side project promoters (and the bidding private partners) tend to be excessively optimistic about the development of such demand. But when we consider the nature of these contracts we should recognize the existence of at least two other very important types of uncertainty: first, the socially desirable scope and specification of the services to be offered as technology and social preferences evolve; and second, the policy guidelines relative to the total quantity and the social distribution of those services, as that quantity may be causing congestion in other parts of the system, or it may become important to (positively or negatively) discriminate some user segments. In both cases, it is almost impossible to foresee at the time of writing the initial contract if, when and in what direction such types of socially beneficial changes in the provision of the services would intervene, but this rigidness may bear a great loss of social welfare in relation to a more adjustable framework. This criticism affects not only PPPs but all kinds of concession contracts with long duration, so it is not the “partnership” element that must be questioned but rather the duration of the contract. An alternative way is relatively straightforward: abandon the assumption that these contracts must provide full amortization of the infrastructure, which allows adoption of contracts with a shorter life, and the use of multiple such contracts over the lifecycle of the infrastructure. The first generation contract would still have to face the full cost of the construction, but the private partner would receive the unamortized part at the end of that contract, to be paid by the State, directly from the public budget if no more private participation is wanted, or indirectly through the acquisition fee for the contract to be paid by the partner to the second life segment. But, crucially, the State recovers the right to re-specify the terms of the service to be provided without the need for any indemnity, and also the uncertainty associated with the evolution of demand in that period will be much smaller, as this will be my then a mature system in operation. This may seem to increase the transaction costs for the State as more contracts (although of a similar type, especially from the second onwards) may have to be negotiated and signed. But if we take into consideration the difficulties of the frequently needed renegotiations of long duration contracts and the conditions of asymmetry of information in which the State normally finds itself in such cases, we will conclude that, besides avoiding the loss of welfare due to the poor fit of the contract after 20 years or so, this solution after all may also reduce the transaction costs associated with negotiations over the duration of the traditional contracts. [Copyright &y& Elsevier]

This paper presents a cost–benefit analysis approach devised to conduct project evaluation in conditions of limited analyst time, research budget and data availability. The emphasis is on discarding economically viable from unviable projects rather than on arriving at a precise estimate of project return. The paper starts by setting out the theoretical background for identifying and measuring project benefits. It then presents a practical approach to measure such benefits in projects involving the expansion of passenger capacity and, subsequently, those aimed at expanding aircraft capacity. Projects in the freight market and the estimation of airport costs are treated in turn. A practical application is included as an appendix. [Copyright &y& Elsevier]

Privatization has increased the number of players in the decision-making process for major transport investment decisions. The main argument of this paper is that this fragmentation is creating opportunities for strategic decision-making by each actor and that this is particularly obvious in the context of demand forecasting. This paper explores some of the specific causes and consequences of this new situation, including the perverse incentives, linked to the diversity of the objectives across the actors and to the risk allocation induced by the regulatory regime. It illustrates the issues and possible solutions from a wide range of modal and country experiences. In particular, it discusses the role of the newly independent sector regulators in reconciling these diverse goals and their limitations in view of the major information asymmetries problems they face. [Copyright &y& Elsevier]

Investment appraisal concerned with investments in fire safety systems is discussed. Particular attention is directed at evaluating, in terms of the Bayesian decision theory, the risk reduction that investment in a fire safety system involves. It is shown how the monetary value of the change from a building design without any specific fire protection system to one including such a system can be estimated by use of quantitative risk analysis, the results of which are expressed in terms of a Risk-adjusted net present value. This represents the intrinsic monetary value of investing in the fire safety system. The method suggested is exemplified by a case study performed in an Avesta Sheffield factory. [Copyright &y& Elsevier]

Investment appraisal methods based on real options are gaining popularity in academia, while the adoption by practitioners is still infrequent. Having in mind practitioners, the method is designed to be: conceptually easy to understand, based on realistic hypotheses and data available, able to provide quantitative indications and strategic guidelines. The method is based on a systematic simulation of several scenarios generated according to exercise thresholds of relevant investment parameters. An exercise threshold gives to the investors the exercise right of taking some decision, for instance building a power plant. An exercise threshold is therefore a rule to decide whether to exercise or not a certain option on the basis of the values of one or more state variables. Consequently, the probability distribution of the Net Present Value (or analogous indicator) of the investment is a function of the state variables and the exercise threshold. Systematically changing the exercise thresholds allow to (A) establishing the "real option value" and (B) calculate relevant indications about when and on which type of plant to invest. The method is presented in detail and applied to a case study assessing the investment appraisal of: coal plant, gas plant, large nuclear reactor and small modular reactor. • Discounted Cash Flow (DCF) is the standard approach for project appraisal. • Real Options methods (RO) are appropriated for risky projects. • RO methods are difficult to apply for practitioners, therefore they often use the DCF. • The paper presents a RO method specifically designed for the practitioners. • This approach provides meaningful indicators for decision makers in the energy industry. [ABSTRACT FROM AUTHOR]