Considering a Model for Sustainable Energy Planning Under Uncertainty

Document Type : Research Paper


Babol Noshirvani University of Technology


In this paper, real options theory is utilized to evaluate the effect of uncertain electricity and CO2 costs on speculation conduct. Methodologically, the allegiance of the newspaper in this appreciation is that uncertainty is not just stopped down as far as stochastic processes and their fluctuation, additionally as far as expected and acknowledged procedures, i.e. the procedures, which are used as a constituent of the progression system, and the processes that the speculator really confronts when picking the choices as per his ideal methodology. We utilize the components of portfolio theory and consolidate them in a vintage setting, keeping in mind the end goal to conquer the lack of it and advantage from that focal point, while as yet having the capacity to think about element portfolios. The idea is to not just discover portfolios that augment returns subject to a predefined level of danger or the other way around keeping in mind the end goal to place the ideal system of innovations at a period in time, yet to decide the ideal means of advancement of such a portfolio after some time, given changing information costs and continuous mechanical advancement and exposure about these processes. In other words, we locate the ideal portfolio over advancements, as well as crosswise over time and quality.


Main Subjects

Azevedo, A.F. and D.A. Paxson, Real options game models: A review. Real Options, 2010. 2010.
Hartman, R., The effects of price and cost uncertainty on investment. Journal of economic theory, 1972. 5(2): p. 258-266.
Abel, A.B., Optimal investment under uncertainty. The American Economic Review, 1983. 73(1): p. 228-233.
Nickell, S.J., The investment decisions of firms. 1978: Nisbet; Cambridge: Cambridge University Press.
Smit, H.T. and L. Trigeorgis, Strategic investment: Real options and games. 2012: Princeton University Press.
Jorgenson, D.W., Capital theory and investment behavior. The American Economic Review, 1963. 53(2): p. 247-259.
Lensink, R., H. Bo, and E. Sterken, Investment, capital market imperfections, and uncertainty: Theory and empirical results. 2001: Edward Elgar Publishing.
Black, F. and M. Scholes, The pricing of options and corporate liabilities. The journal of political economy, 1973: p. 637-654.
McDonald, R. and D. Siegel, The Value of Waiting to Invest," The Quarterly Journal of Economics, November 1986. 1986.
Pindyck, R., Irreversibility, Uncertainty and Investment. Journal of Economic Literature, 1991. 29(3): p. 1110-1148.
Pindyck, R.S., Capital risk and models of investment behaviour. 1988: Springer.
Pindyck, R.S., Investments of uncertain cost. Journal of financial Economics, 1993. 34(1): p. 53-76.
Dixit, A.K. and R.S. Pindyck, Investment under uncertainty. 1994: Princeton university press.
Diaz, M., Valuation of Exploration and Production Assets: An Overview of Real Options Models. Journal of Petroleum Science and Engineering, 2004. 44(1-2): p. 93-114.
Kolstad, C.D., Fundamental irreversibilities in stock externalities. Journal of Public Economics, 1996. 60(2): p. 221-233.
Kolstad, C.D., Learning and stock effects in environmental regulation: the case of greenhouse gas emissions. Journal of environmental economics and management, 1996. 31(1): p. 1-18.
Ulph, A. and D. Ulph, GLOBAL WARMING, IRREVERSIBILITY AND LEARNING*. The Economic Journal, 1997. 107(442): p. 636-650.
Garvin, M.J. and C.Y. Cheah, Valuation techniques for infrastructure investment decisions. Construction Management and Economics, 2004. 22(4): p. 373-383.
Merton, R., The Theory of Rational Option Pricing. Journal of Economic Management Science, 1973. 4: p. 141-183.
Pindyck, R.S., Uncertainty and exhaustible resource markets. The Journal of Political Economy, 1980: p. 1203-1225.
Brennan, M.J. and E.S. Schwartz, Evaluating natural resource investments. Journal of business, 1985: p. 135-157.
Majd, S. and R.S. Pindyck, Time to build, option value, and investment decisions. Journal of financial Economics, 1987. 18(1): p. 7-27.
So, C.K.C.K.T., Game theory and real options: analysis of land value and strategic decisions in real estate development. 2013, Massachusetts Institute of Technology.
Balcer, Y. and S.A. Lippman, Technological expectations and adoption of improved technology. Journal of Economic Theory, 1984. 34(2): p. 292-318.
Farzin, Y.H., K.J. Huisman, and P.M. Kort, Optimal timing of technology adoption. Journal of Economic Dynamics and Control, 1998. 22(5): p. 779-799.
Grenadier, S.R. and A.M. Weiss, Investment in technological innovations: An option pricing approach. Journal of financial Economics, 1997. 44(3): p. 397-416.
Change, I.P.O.C., Climate change 2007: synthesis report. Adopted by Session at IPCC Plenary XXVII, 2007.
Tseng, C.-L. and G. Barz, Short-term generation asset valuation: a real options approach. Operations Research, 2002. 50(2): p. 297-310.
Hlouskova, J., et al., Real options and the value of generation capacity in the German electricity market. Review of Financial Economics, 2005. 14(3): p. 297-310.
Deng, S.-J. and S.S. Oren, Incorporating operational characteristics and start-up costs in option-based valuation of power generation capacity. Probability in the Engineering and Informational Sciences, 2003. 17(02): p. 155-181.
Davis, G.A. and B. Owens, Optimizing the level of renewable electric R&D expenditures using real options analysis. Energy Policy, 2003. 31(15): p. 1589-1608.
Chaton, C. and J.A. Doucet, Uncertainty and Investment in Electricity Generation with an Application to the case of Hydro-Quebec. Annals of Operations Research, 2003. 120(1-4): p. 59-80.
Keppo, J. and H. Lu, Real options and a large producer: the case of electricity markets. Energy Economics, 2003. 25(5): p. 459-472.
Helfat, C.E., Investment choices in industry. 1988: Mit Press.
Seitz, N. and M. Ellison, Capital budgeting and long-term financing decisions. 1995: Harcourt Brace College Publishers.
Barā€Lev, D. and S. Katz, A portfolio approach to fossil fuel procurement in the electric utility industry. The Journal of Finance, 1976. 31(3): p. 933-947.
Awerbuch, S. and M. Berger. Applying portfolio theory to EU electricity planning and policy making. in IAEA/EET Working Paper No. 03, EET. 2003. Citeseer.
Awerbuch, S., Portfolio-based electricity generation planning: policy implications for renewables and energy security. Mitigation and adaptation strategies for Global Change, 2006. 11(3): p. 693-710.
Blyth, W. and K. Hamilton, Aligning climate and energy policy. Chatham House. En http://www. chathamhouse. org. uk/pdf/research/sdp/Stern, 2006. 210406.
Daily spot prices for coal. 2016  [cited 2016; Available from:
Murto, P., Timing of investment under technological and revenue-related uncertainties. Journal of Economic Dynamics and Control, 2007. 31(5): p. 1473-1497.
van Ruijven, B., et al., A global model for residential energy use: Uncertainty in calibration to regional data. Energy, 2010. 35(1): p. 269-282.
Mercure, J.-F., FTT:Power : A global model of the power sector with induced technological change and natural resource depletion. Energy Policy, 2012. 48: p. 799-811.
Kikuchi, Y., et al., A scenario analysis of future energy systems based on an energy flow model represented as functionals of technology options. Applied Energy, 2014. 132: p. 586-601.
Lund, P.D., et al., Review of energy system flexibility measures to enable high levels of variable renewable electricity. Renewable and Sustainable Energy Reviews, 2015. 45: p. 785-807.
Farzaneh, H., C.N.H. Doll, and J.A. Puppim de Oliveira, An integrated supply-demand model for the optimization of energy flow in the urban system. Journal of Cleaner Production, 2016. 114: p. 269-285.
Hach, D. and S. Spinler, Capacity payment impact on gas-fired generation investments under rising renewable feed-in — A real options analysis. Energy Economics, 2016. 53: p. 270-280.
Hull, J.C., Options, futures, and other derivatives. 2006: Pearson Education India.
Volume 10, Issue 2
April 2017
Pages 1-24
  • Receive Date: 10 October 2016
  • Revise Date: 08 November 2016
  • Accept Date: 15 November 2016
  • First Publish Date: 29 June 2017