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Optimal investment decision for photovoltaic projects in China: a real options method

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Abstract

In an uncertain environment, it is important to investigate whether to postpone, abandon or immediately invest in photovoltaic (PV) projects. This paper applies a real options model to explore the optimal investment decision for investors and the government’s optimal incentive strategy in China’s distributed PV market. The uncertainties of feed-in tariffs (FIT) and investment costs are included in this study as critical factors affecting the options value of PV projects. Multiple scenarios are designed from different dimensions, including various subsidy durations, different resource areas, and distinct regulatory policies. The results show that not only the current FIT and investment cost affect the investment choice, but also the potential change trend of FIT and investment cost affect the investor’s preference. The results also reveal that appropriate FIT regulation can effectively induce investors who abandon investment to choose to delay investment, and significantly shorten the delay time. These conclusions can provide valuable insights for investors to optimize investment decisions.

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Funding

The authors are supported by the National Natural Science Foundation of China (No. 72201089) and the Introducing and Stabilizing Talent Project of Anhui Agriculture University (No. rc402202).

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Authors and Affiliations

  1. School of Economics and Management, Anhui Agricultural University, Hefei, 230036, China

    Xing Zhu

  2. School of Management, Hefei University of Technology, Hefei, 230009, China

    Baoyu Liao

  3. Key Laboratory of Process Optimization and Intelligent Decision-Making, Ministry of Education, Hefei, 230009, China

    Baoyu Liao

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  1. Xing Zhu
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  2. Baoyu Liao
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Correspondence to Baoyu Liao.

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Zhu, X., Liao, B. Optimal investment decision for photovoltaic projects in China: a real options method. J Comb Optim 46, 30 (2023). https://doi.org/10.1007/s10878-023-01096-5

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