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http://dx.doi.org/10.7232/JKIIE.2012.38.2.144

Evaluation of the Economic Values and Optimal Deployment Timing of R&D Investment in New and Renewable Energy Using Real Option Approach  

Kim, Kyung-Taek (Dept. of Industrial and Management System Engineering, Kyung Hee University)
Lee, Deok-Joo (Dept. of Industrial and Management System Engineering, Kyung Hee University)
Park, Sung-Joon (Dept. of Industrial and Management System Engineering, Kyung Hee University)
Publication Information
Journal of Korean Institute of Industrial Engineers / v.38, no.2, 2012 , pp. 144-156 More about this Journal
Abstract
In recent years, advanced countries in energy sector are emphasizing the importance of the development and deployment of renewable energy to cope with the global environmental crisis such as depletion of fossil energy, climate convention to control emissions of greenhouse gases. In this paper, we evaluate the economic value of the investment in new and renewable energy R&D in Korea and optimal deployment timing of new and renewable energy by using the real option approach. The real option model adopted in this paper assumes that a decision maker has a compound option to abandon, deployment, or continue the R&D. As a result by using empirical data of Korea, it is found that there exists a considerable amount of positive real option value (ROV) in the investment of new and renewable energy R&D while its net present value (NPV) calculated by traditional discounted cash flow (DCF) model shows negative value.
Keywords
Economic Evaluation; New and Renewable Energy R&D; Real Option;
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