Determining the Value of Governmental Subsidies for the Installation of Clean Energy Systems Using Real Options

Limiting greenhouse gas emissions has continually gained importance since the Kyoto protocol became effective in 2005. A variety of efforts have been made to reduce energy consumption and introduce supposedly clean and renewable energy that can replace fossil fuelbased energy sources. However, many...

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Bibliographic Details
Published inJournal of construction engineering and management Vol. 138; no. 3; pp. 422 - 430
Main Authors Kim, Byungil, Lim, Hyunsu, Kim, Hyoungkwan, Hong, Taehoon
Format Journal Article
LanguageEnglish
Published Reston, VA American Society of Civil Engineers 01.03.2012
Subjects
Applied sciences
Building technical equipments
Buildings
Buildings. Public works
Energy management and energy conservation in building
Environmental engineering
Exact sciences and technology
Miscellaneous
TECHNICAL PAPERS
Asia
South Korea
Korea
Korea, Rep., Seoul
Energy consumption
Script
Gas emission
Government aid
Alternative energy
Photovoltaic system
Subsidy
Greenhouse gases
Construction industry
Emissions
Federal government
Greenhouse gas
Environment impact
Life cycle cost
Application
Real option analysis
Comparative study
Environmental protection
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Summary:Limiting greenhouse gas emissions has continually gained importance since the Kyoto protocol became effective in 2005. A variety of efforts have been made to reduce energy consumption and introduce supposedly clean and renewable energy that can replace fossil fuelbased energy sources. However, many clean energy sources are not economically viable by themselves, and, therefore, government subsidies are necessary to provide sufficient economic motivation for the installation of new types of energy. For that reason, it is necessary to develop a method for reasonably and accurately determining an appropriate level of government subsidy for private entities. In this paper we propose a real option-based framework for rationally quantifying the amount of government subsidy required by private entities in order to implement a clean energy generation system. A case study that involved the installation of a photovoltaic system in an average household in Seoul, Korea was conducted in order to verify the proposed framework. The proposed framework is expected to help energy policymakers choose the proper level of government subsidy that will effectively encourage private entities to install clean energy systems without wasting taxpayers’ money.
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ISSN:0733-9364
1943-7862
DOI:10.1061/(ASCE)CO.1943-7862.0000443