How to proceed with competing alternative energy technologies: A real options analysis

Publication Type

Journal Article

Date Published

07/2010

Abstract

Concerns about CO2 emissions create incentives for the development and deployment of energy technologies that do not use fossil fuels. Indeed, such technologies would provide tangible benefits in terms of avoided fossil-fuel costs, which are likely to increase as restrictions on CO2 emissions are imposed. However, a number of challenges need to be overcome prior to market deployment, and the commercialisation of alternative energy technologies may require a staged approach given price and technical risk. We analyse how a firm may proceed with staged commercialisation and deployment of competing alternative energy technologies. An unconventional new alternative technology is one possibility, where one could undertake cost-reducing production enhancement measures as an intermediate step prior to deployment. By contrast, the firm could choose to deploy a smaller-scale existing renewable energy technology, and, using the real options framework, we compare the two projects to provide managerial implications on how one might proceed.

Journal

Energy Economics

Volume

Vol. 32

Year of Publication

2010

Issue

Issue 4

Pagination

14