Real Options: An Evaluation Tool for a Photovoltaic System for Self-consumption

The use of renewable sources to produce energy is good for the planet and has economic value, that is, investing in the produce of green energy can be economically viable. This paper aims to conduct an evaluation, using real options tools, of a photovoltaic (PV) system, for self-consumption, at the Campus of Polytechnic Institute of Viseu, Portugal. A PV system produces electricity from sun and its investment can be viable, particularly in sunny countries like Portugal. This viability comes from the rapid recovery of the investment, since the energy produced is no longer bought to the electrical network. The utilization of real options, in this study, namely the decision trees, allows integrating uncertainty sources and operational flexibility. In this work, we considered the price of electricity tariff and the value of the initial investment as uncertain values. The operational flexibility is integrated by considering the options “invest”, “defer” and “not invest” in the PV system, for self-consumption. The results suggest that the Polytechnic Institute of Viseu should invest in a PV system, for self-consumption. The use of solar energy, especially in countries with high sun expose, such as Portugal, is economically viable.