Article ID: | iaor20163550 |
Volume: | 245 |
Issue: | 1 |
Start Page Number: | 163 |
End Page Number: | 175 |
Publication Date: | Oct 2016 |
Journal: | Annals of Operations Research |
Authors: | Pla-Santamaria David, Bravo Mila, Garcia-Bernabeu Ana, Benito Antonio |
Keywords: | decision, decision theory: multiple criteria, investment, simulation, stochastic processes, government |
This paper proposes a compromise programming (CP) model to help investors decide whether to construct photovoltaic power plants with government financial support. For this purpose, we simulate an agreement between the government, who pursues political prices (guaranteed prices) as low as possible, and the project sponsor who wants returns (stochastic cash flows) as high as possible. The sponsor’s decision depends on the positive or negative result of this simulation, the resulting simulated price being compared to the effective guaranteed price established by the country legislation for photovoltaic energy. To undertake the simulation, the CP model articulates variables such as ranges of guaranteed prices, technical characteristics of the plant, expected energy to be generated over the investment life, investment cost, cash flow probabilities, and others. To determine the CP metric, risk aversion is assumed. As an actual application, a case study on photovoltaic power investment in Extremadura, western Spain, is developed in detail.