Real Options Analysis on Valuation of Wind Farm in Colombia

摘要

Real Options Analysis (ROA) is an advanced valuation method that allows decision makers to take advantage of market opportunities, if future conditions evolve favorably. Investors should value the flexibility to change decisions as uncertainty develops. The main objective of this study is to evaluate a non-conventional renewable energy project in Colombia through ROA and traditional methodologies. Investments in electricity generation projects with wind sources are subject to irreversibility and uncertainty. This study applies this valuation technique in a wind farm in Colombia with the option to postpone the investment, the real option was assessed by the binomial tree method and Monte Carlo simulation was used to determine the volatility of the project. The results show that the valuation of the wind farm by traditional methods such as the Net Present Value the project is rejected and the investment would not be recommended. However, when introducing the price of energy as a variable of uncertainty and applying the ROA method, the project would not be rejected, the decision would be to defer the investment until the market conditions are favorable.