How to Model the Value of “Real Options,” as Determined by Flexible Design Principles, for Hydropower Facilities in Developing Nations Given the Uncertainties of Climate Change, Energy Demand, and Cos
Date of Award
Doctor of Philosophy (PhD)
Africa, and many other developing regions, are moving forward with an electricity program that includes significant amounts of hydropower. While this push to harness river flows to electrify nations holds great promise, there are complex risks that threaten the completion of such projects. Specifically, climate change may disrupt river flows, creating revenue risks for a power source dependent on flow volumes. Demand and cost overrun uncertainties are more familiar, but also pose problems. Flexible design, at the project level, provides a risk-mitigating response that does not require pinpoint accuracy in project forecasting. Rather, it builds flexibility into the design phase of the project life-cycle. To properly value the design possibilities generated by a flexible approach, a real options analysis is needed. Real options can be a powerful decision making tool for developers of large projects. It may also add value to public private partnership contracts, by unlocking hidden value that can be leveraged for both parties in the concession. Using two case studies from Africa, the Batoka Gorge Dam, and the Inga Dam complex, this dissertation details a framework for the valuation of flexible design, how to build a real options model, and illustrates the framework’s use in real world projects.
Swanson, Adam Richard, "How to Model the Value of “Real Options,” as Determined by Flexible Design Principles, for Hydropower Facilities in Developing Nations Given the Uncertainties of Climate Change, Energy Demand, and Cos" (2017). Civil Engineering Graduate Theses & Dissertations. 399.