Photovoltaic power purchase agreement valuation under real options approach

• Published in: Renewable energy focus Vol. 36; pp. 96 - 107
• Main Authors: Isaza Cuervo, Felipe, Arredondo-Orozco, Carlos Andrés, Marenco-Maldonado, Gabriela Carolina
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01-03-2021
• ISSN: 1755-0084; 1878-0229
• DOI: 10.1016/j.ref.2020.12.006

•A PPA business model is assessed under the Colombian renewable energies law.•PV investments are feasible when tax benefits are considered into the model.•ROA shows that is better to delay the investment under current market conditions.•Low execution of PV projects under Law 1715 is explained in the ROA approach.
Renewable energies are an alternative to explore new business models in Colombia, especially when the new regulation associated with Law 1715 is considered. In this work the financial feasibility of a power purchase agreement (PPA) that uses photovoltaic energy is analyzed from the perspective of a non-traditional investor. In this paper, the financial feasibility of a PPA business was analyzed considering some of the benefits offered by Law 1715 through the use of discounted cash flows and real option analysis. The results show that tax benefits (included on Law 1715) improve the feasibility of this business models in Colombia, nevertheless, the defer option value suggest the convenience of delaying the investment. This work contributes to the analysis of the effect of the renewable energy policy incentives and the development of new business models based on renewable energies and the analysis of decisions that help include photovoltaic energy in Colombia.