Option Valuation of Solar Power Investments in an Office Building

DR.-ING. FRANCO PENIZZOTTO; DR.-ING. ROLANDO PRINGLES; JUAN PABLO MARTINEZ; DR.-ING. FERNANDO OLSINA

Mar del Plata, Buenos Aires

Congreso; 12th Latin-American Congress on Electricity Generation and Transmission; 2017

Universidad Nacional de Mar del Plata

Distributed renewable generation, such as rooftop solar photovoltaic, has grown exponentially in the past few years. Despite its benefits, investments in solar energy need to be encouraged in underdeveloped countries. More than 50% of Argentinian population lives and works in cities, which actually represent more than 80% of the energy demanded all over the country. In addition, 30% of this energy is consumed by buildings, where exist substantial saving opportunities through the use of photovoltaic panels and small wind turbines. The recent Argentinian Law 27.191 about the use of renewable energy, states that for the year 2025, 20% of electrical consumption must be provided by clean energy sources. One of the challenges, among many others more technical, that face self-generation decisions is about the economic benefits that this technology can provide, since uncertainty about important variables like feed-in tariffs, technology costs, and government policies is high. In this work, we have applied a modern economic method to evaluate a rooftop solar photovoltaic project investment in a government building in San Juan, Argentina (Civic Center of San Juan), in order to aid decision making. To consider uncertainties, we apply Monte Carlo simulation to achieve an stochastic option valuation. The option of ?differing? the investment was taken into account. Therefore, the decision of ?when? is the right moment to exercise the option of investing is answered after a real option analysis.