FLEXIBLE INVESTMENT DECISIONS FOR SOLAR PHOTOVOLTAIC PROJECTS IN SINGAPORE

Abstract

Currently, Solar Photovoltaic (PV) has been widely used in many countries because of its superiority in energy saving. Solar energy is the most convenient and the least polluted energy source. The conversion of solar energy into useful forms could, in theory, be an effective solution to energy shortage and an important strategy of sustainable development of energy as well. However, the upfront investment costs for solar technology is still far in excess of traditional sources and it takes a long period before building owner can reap the benefits of their investments. In many countries, where the sunlight are not always very strong, the cost of making electricity from solar energy is not practical for the amount of electricity produced. This indicates a need to reconsider solar investment decisions or develop a flexible decision-making process. The Zero Energy Building @ BCA Academy will be taken as an example to evaluate in this paper. The case study was evaluated using real option model, a process which involved collected data for future cash flow forecast, estimated the future electricity prices over solar service life using a GBM based stochastic process and setting up a binomial tree to evaluate the asset values and option values for solar investment. From the real option analysis results, investors can easily identify the optimal timing to invest solar PV project so as to achieve interest maximizing. The better investment decision such as choosing solar-ready to instead of solar investment was found out through comparative analysis.