Real options analysis for renewable energy investment decisions in developing countries

Renewable energy projects in developing countries should provide clean energy supply as well as support sustainable economic development. To this end, risks arising from uncertainties such as rapidly changing technologies and host government conditions should be carefully addressed. However, traditional methods for economic assessment are not adequate to support decision-making regarding investments in renewable energy. This paper proposes a real options analysis framework as a tool to assess renewable energy investment in developing countries. A case study involving a hydropower project in Indonesia was conducted to validate and verify the proposed framework. This framework is expected to help host countries and investors assess renewable energy projects with high volatility and risk.