A real options analysis of entry-exit decisions for dry-grind corn ethanol plants is conducted to incorporate the impact of rising volatility in market prices. For a large plant, the estimated gross margins (ethanol price less corn price), in current dollars, that induce entry and exit were 0.35 US$ dm-3 and 0.03 US$ dm-3, respectively; nearly 207% (63%) above (below) their respective net present value estimates. Under baseline conditions, a large operating plant would become mothballed at 0.05 US$ dm-3 and reactivate if margins rebounded to 0.17 US$ dm-3. Growth in the variability of ethanol margins will lead to delays in new plant investments, as well as exits of currently operating facilities. To the extent that alternative renewable fuel technologies become viable, the model can be easily adapted to estimate and compare the results across alternative bioenergy investments. © 2009 Elsevier Ltd. All rights reserved.

Ethanol plant investment using net present value and real options analyses / Schmit, T. M.; Luo, Jianchuan; Tauer, L. W.. - In: BIOMASS & BIOENERGY. - ISSN 0961-9534. - 33:10(2009), pp. 1442-1451. [10.1016/j.biombioe.2009.06.010]

Ethanol plant investment using net present value and real options analyses

LUO, JIANCHUAN;
2009

Abstract

A real options analysis of entry-exit decisions for dry-grind corn ethanol plants is conducted to incorporate the impact of rising volatility in market prices. For a large plant, the estimated gross margins (ethanol price less corn price), in current dollars, that induce entry and exit were 0.35 US$ dm-3 and 0.03 US$ dm-3, respectively; nearly 207% (63%) above (below) their respective net present value estimates. Under baseline conditions, a large operating plant would become mothballed at 0.05 US$ dm-3 and reactivate if margins rebounded to 0.17 US$ dm-3. Growth in the variability of ethanol margins will lead to delays in new plant investments, as well as exits of currently operating facilities. To the extent that alternative renewable fuel technologies become viable, the model can be easily adapted to estimate and compare the results across alternative bioenergy investments. © 2009 Elsevier Ltd. All rights reserved.
Biofuels manufacturing; Geometric Brownian motion; Mothballing; Plant investment; Real options
Ethanol plant investment using net present value and real options analyses / Schmit, T. M.; Luo, Jianchuan; Tauer, L. W.. - In: BIOMASS & BIOENERGY. - ISSN 0961-9534. - 33:10(2009), pp. 1442-1451. [10.1016/j.biombioe.2009.06.010]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/188528
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