Lai, CS and Locatelli, G orcid.org/0000-0001-9986-2249 (2021) Valuing the option to prototype: A case study with Generation Integrated Energy Storage. Energy, 217. 119290. ISSN 0360-5442
Abstract
New energy generation and storage systems are continuously being developed due to climate change, resource scarcity, and environmental laws. Some systems are incremental innovations of existing systems while others are radical innovations. Radical innovation systems are risky investments due to their relevant technical and economic uncertainties. Prototyping can hedge these risks by spending a fraction of the cost of a full-scale system and in return receiving economic and technical information regarding the system. In economic terms, prototyping is an option to hedge risk coming at a cost that needs to be properly assessed. Real options analysis is the project appraisal approach for these assessments. This paper aims to introduce and test an algorithm based on real options analysis to quantitatively assess the “option to prototype” in the energy sector. First, the interrelated research areas of prototyping, energy systems, and real options analysis are reviewed. Then, a novel algorithm is presented and applied to an innovative Generation Integrated Energy Storage system: Wind-driven Thermal Pumping to demonstrate the effectiveness of option to prototype and the main parameters influencing this decision. Results show that the cost of the prototype and the market size (number of identical systems to build) are key parameters.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © 2020 The Author(s). Published by Elsevier Ltd. This is an author produced version of an article published in Energy. Uploaded in accordance with the publisher's self-archiving policy. |
Keywords: | Prototyping; Real options analysis; Generation integrated energy storage; Energy infrastructure; Investment risk |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Engineering & Physical Sciences (Leeds) > School of Civil Engineering (Leeds) |
Funding Information: | Funder Grant number EPSRC (Engineering and Physical Sciences Research Council) EP/P022049/1 |
Depositing User: | Symplectic Publications |
Date Deposited: | 13 Nov 2020 12:45 |
Last Modified: | 19 Nov 2021 01:38 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.energy.2020.119290 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:167881 |