Switch and defer option in renewable energy projects: Evidences from Brazil.

The global electricity sector is responsible for a large share of greenhouse gas. Renewable energy (RE) is a feasible alternative to maintain sustainable growth and economic development, as it appears to be a means to reduce emissions and decarbonize economies. Renewable energy projects present some uncertainties and flexibilities that are ignored by traditional methods of evaluation, such as the net present value (NPV), which can lead to undervaluation. This paper aims to assess the switch-output option and defer option for RE projects according to their features in the Brazilian electricity market. The real options approach (ROA) for RE projects seeks to capture the value of uncertainties and flexibilities that all projects have from an investor's point of view. Then, when we adopted a more sophisticated approach that values flexibilities and uncertainties for RE projects, it was possible to conclude that there was a clear increase in value when compared to traditional investment analysis methods like the NPV. • The penetration of renewable energy in the Brazilian Electricity Market is growing. • The Real Options Approach represents an alternative to traditional methods of investments analysis. • Real options deals with the inherent characteristics of renewable energy projects. • Real Options show an increase in value when compared to traditional methods. [ABSTRACT FROM AUTHOR]