Option Valuation of Solar Power Investments in an Office Building

PENIZZOTTO, F.; OLSINA, F.; MARTINEZ, J.P.; PRINGLES, R.

Mar del Plata

Congreso; XII Latin-American Congress on Electricity Generation and Transmission (CLAGTEE); 2017

Universidad Nacional de Mar del Plata

Distributed renewable generation, such as rooftopsolar photovoltaic, has grown exponentially in the past fewyears. Despite its benefits, investments in solar energy need tobe encouraged in underdeveloped countries. More than 50% ofArgentinian population lives and works in cities, which actuallyrepresent more than 80% of the energy demanded all over thecountry. In addition, 30% of this energy is consumed by buildings,where exist substantial saving opportunities through the useof photovoltaic panels and small wind turbines. The recentArgentinian Law 27.191 about the use of renewable energy,states that for the year 2025, 20% of electrical consumption mustbe provided by clean energy sources. One of the challenges,among many others more technical, that face self-generationdecisions is about the economic benefits that this technology canprovide, since uncertainty about important variables like feed-intariffs, technology costs, and government policies is high. In thiswork, we have applied a modern economic method to evaluatea rooftop solar photovoltaic project investment in a governmentbuilding in San Juan, Argentina (Civic Center of San Juan),in order to aid decision making. To consider uncertainties, weapply Monte Carlo simulation to achieve an stochastic optionvaluation. The option of ?differing? the investment was takeninto account. Therefore, the decision of ?when? is the rightmoment to exercise the option of investing is answered after areal option analysis.