Real Options in Small Hydropower Investments: An Empirical Study from Norway

• Main Authors: Gravdehaug, Guro, Remmen, Ragnhild
• Format: Others
• Language: English
• Published: Norges teknisk-naturvitenskapelige universitet, Institutt for industriell økonomi og teknologiledelse 2011
• Subjects: ntnudaim:6003; MTIØT Industriell økonomi og teknologiledelse
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:no:ntnu:diva-15052

This empirical study examines investment behavior in small hydropower investments under uncertain electricity prices and revenues from selling so-called green certificates. We assess 73 small hydropower projects granted a license to build from the Norwegian authorities. The license is considered an American call option with infinite lifetime. To examine the investment behavior, we conduct a survey to recreate the available information on the date of investment decision. We apply a net present value approach and a real options value approach to the small hydropower projects by using two scenarios; with and without green certificates. Our data does not support that a real options approach explains investor behavior better than a net present value approach.