THE OPTION VALUE OF RENEWABLE ENERGY - THE CASE OF CLIMATE-CHANGE

Decision makers receive mired signals from the investment literature on when it is appropriate to develop renewable energy technology substitutes for fossil fuels. This question is becoming more important as attention has become focused on climate change. With the assumptions that information is revealed as time passes and the new technologies take a long time to develop, renewable energy alternatives are move attractive than they appear on the basis of the net present value criterion that ignores option value. Option value represents the value of flexibility to use or discard new technologies.