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Rethinking the evaluation of solar photovoltaic projects under YieldCo mode: A real option perspective

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  • Cheng, Cheng
  • Dong, Kangyin
  • Wang, Zhen
  • Liu, Shulin
  • Jurasz, Jakub
  • Zhang, Haoran

Abstract

Many corporations invest in solar photovoltaic (PV) projects to mitigate climate change. However, lack of capital poses a great challenge to the development of the solar PV industry. YieldCos that are a financial tool to securitize assests for renewable energy corporations were introduced to alleviate the financial pressure, but their achievements are unable to meet the expected performance level. Therefore, a question araises: Can YieldCos promote the development of solar PV industry? To solve this issue, this paper utilized a real option method to investigate whether YieldCos can facilitate the deployment of solar PV projects and their impact on decision-making processes. Based on the solution obtained from the real option model, we explore the impacts of decisive factors on the defer option value, investment threshold and expected execution time. The joint impacts of the dividend ratio and other factors are also investigated. We conclude that YieldCos are suitable for solar PV projects, while a high dividend ratio will make investors postpone their investments. In addition, by using the technological level to represent the drift term of investment, we further discuss how decision-makers should react to the potential technological innovation. Moreover, we also discuss the impacts of potential declines in feed-in tariffs on investors’ behaviour. We conclude that YieldCos can promote the development of solar PV in China as it can urge investors to invest at an early stage. Related policy recommendations are also proposed.

Suggested Citation

  • Cheng, Cheng & Dong, Kangyin & Wang, Zhen & Liu, Shulin & Jurasz, Jakub & Zhang, Haoran, 2023. "Rethinking the evaluation of solar photovoltaic projects under YieldCo mode: A real option perspective," Applied Energy, Elsevier, vol. 336(C).
    • Handle: RePEc:eee:appene:v:336:y:2023:i:c:s0306261923002039
    DOI: 10.1016/j.apenergy.2023.120839
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    3. Sun, Bo & Fan, Boyang & Wu, Chun & Xie, Jingdong, 2024. "Exploring incentive mechanisms for the CCUS project in China's coal-fired power plants: An option-game approach," Energy, Elsevier, vol. 288(C).

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    More about this item

    Keywords

    Real option; Solar photovoltaic projects; YieldCo; Optimal investment timing; Technological innovation;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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