Application of Real Options Theory to the Assessment of Public Incentives for Onshore Wind Energy Development in Spain

Authors

  • José Balibrea-Iniesta POLYTECHNIC UNIVERSITY OF MADRID
  • Antonio Sánchez-Soliño POLYTECHNIC UNIVERSITY OF MADRID
  • Antonio Lara-Galera POLYTECHNIC UNIVERSITY OF MADRID

Abstract

This paper discusses the important development of electricity production from renewable energy in Spain. The regulatory framework has played a key role in this process, particularly the 661/2007 Royal Decree of May 25. The legislation grants certain rights to promoters. These rights can be characterized as options, allowing us to utilize a signifi cant number of theoretical and empirical studies in the fi eld of fi nancial option pricing in our analysis. Insofar as these derivative assets have underlying real and non-fi nancial assets (i.e., a wind farm), the rights provided for in Royal Decree 661/2007 can be considered real options. In this paper, a method is proposed to evaluate investment projects in Spanish wind power based on the Royal Decree. The value of these projects is certainly affected by the real options contained in the Royal Decree. Finally, public aid granted by the administration for the development of renewable energies is evaluated.

Keywords: Real Regulatory Options, Renewable Energy, Project Valuation

JEL Classifications: C63, H43, H54, H71, L51, L94, L98

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Author Biographies

José Balibrea-Iniesta, POLYTECHNIC UNIVERSITY OF MADRID

DEPARTMENT OF CIVIL ENGINEERING: CONSTRUCTIONAD HONOREM PROFESSOR

Antonio Sánchez-Soliño, POLYTECHNIC UNIVERSITY OF MADRID

ASSOCIATE PROFESSORDEPARTMENT OF CIVIL ENGINEERING: CONSTRUCTION

Antonio Lara-Galera, POLYTECHNIC UNIVERSITY OF MADRID

INTERIM ASSOCIATE PROFESSORDEPARTMENT OF CIVIL ENGINEERING: CONSTRUCTION

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Published

2015-07-13

How to Cite

Balibrea-Iniesta, J., Sánchez-Soliño, A., & Lara-Galera, A. (2015). Application of Real Options Theory to the Assessment of Public Incentives for Onshore Wind Energy Development in Spain. International Journal of Energy Economics and Policy, 5(3), 791–800. Retrieved from https://www.econjournals.com/index.php/ijeep/article/view/1103

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