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http://dx.doi.org/10.15266/KEREA.2018.27.4.613

A Real Options Analysis on Fuel Cell Power Plant considering Mean Reverting Process of Electricity Price  

Park, Hojeong (Department of Food and Resource Economics and KU.KIST GREEN School)
Nam, Youngsik (Chungbuk Research Institute)
Publication Information
Environmental and Resource Economics Review / v.27, no.4, 2018 , pp. 613-637 More about this Journal
Abstract
Fuel cell power plant which has advantages as a distributed generation is influenced by high cost of investment and uncertainty of electricity price. This study suggests the model of real options which considers the irreversibility of investment in the fuel cell plant and the uncertainty of electricity price. Most models of real options assume the geometric Brownian motion for convenience, but this study develops the model for the feasibility analysis considering the mean reverting process of electricity price, with the closed form solution on the value of investment option. The result of the empirical analysis considering the data related to the fuel cell generation with the scale of 20MW and the domestic RPS circumstance represents that the investment is feasible without the uncertainty, and is not feasible with the uncertainty. This result implies that the political support as well as the improvement of profit system including revenue and cost are necessary for the activation of the fuel cell power plant.
Keywords
Real options; Mean reverting process; Fuel cell power plant;
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