Real options analysis for financial valuation of geothermal energy projects in Colombia
Journal Title: Revista CEA - Year 2021, Vol 7, Issue 15
Abstract
Energy investment projects are usually valuated applying classical techniques that assume static cash flows. However, such techniques are insufficient because they do not consider the risks associated with the input variables or the decision-making flexibility of investors. This study evaluates the financial viability of geothermal energy projects in Colombia while considering uncertainty and the characteristic risk of this kind of projects. It describes the study case under analysis, the most common modeling variables used in projects of this type, and the associated probabilistic distributions. A Monte Carlo simulation was implemented to establish the financial viability of a project by applying classical criteria found in the literature. The findings were compared to those obtained when the real options approach was applied to the study case, which was evaluated based on a compound real option during the investment phases. The results show that the project is not feasible when traditional valuation methods are used, but it is attractive when investor flexibility is taken into account. Therefore, risk factors and uncertainty should be considered in the evaluation of the financial viability of investment projects because they add value to the feasibility analysis and offer a more realistic vision of such projects.
Authors and Affiliations
Yessenia Martínez-Ruiz, Diego Fernando Manotas-Duque, Howard Ramírez-Malule
Keywords
Related Articles
- EP ID EP697571
- DOI https://doi.org/10.22430/24223182.1944
- Views 124
- Downloads 0
TOWS Analysis on Recissbar to Increase Its Competitiveness
This study aims to analyze Recissbar's internal and external factors in order to define strategies to increase its competitiveness. Recissbar is a small business in Bandung (Indonesia) that sells traditional Indonesian f...
Madurez tecnológica de la generación Z: reto de la transformación digital en Colombia
Las diferencias generacionales son consideradas la causa principal que determina la capacidad de interacción con nuevas tecnologÃas. El concepto de «nativo digital» ha tomado fuerza y visibilidad en ciertas áreas de...
Determinants of Loyalty in the Relationship Between Liga Antioqueña de Tenis de Campo and its Customers
In order to have long-lasting relationships with their customers, sports organizations should make good marketing decisions based on studies that identify the characteristics of such relationships. In the literature, som...
Intención emprendedora y educación superior: Un enfoque bibliométrico
El objetivo del presente estudio fue presentar un análisis bibliométrico de las investigaciones sobre intención emprendedora relacionado con la educación superior. Para ello, se aplicó una metodología que usó el conjunto...
IT Services Outsourcing: Governance Model for Public Universities
Purpose: The aim of this study was to design a governance model for IT services outsourcing at public universities. Design/methodology: This study employed a qualitative methodology divided into three steps: first, inte...