Risk Assessment in Economic Feasibility Analysis: The Case of Ethanol Production in Texas

The objective of this study is to demonstrate the benefits of quantifying the economic viability of a proposed agribusiness under risk relative to a feasibility study which ignores risk. To achieve this objective, the economic viability of a 50 MMGPY ethanol facility in Texas is analyzed over a 10-year period in two ways: with no risk and with historical risk for prices and costs.Risk and Uncertainty,

Including Risk in Economic Feasibility Analyses: The Case of Ethanol Production in Texas

The widespread use of personal computers and spreadsheet models for feasibility studies makes risk-based Monte Carlo simulation analysis of proposed investments a relatively simple task. Add-in simulation packages for Microsoft® Excel can be used to make spreadsheet models stochastic. Rather than basing investment decisions on point estimates, investors can easily estimate the implied distributions of returns for uncertain investments and calculate the risk of an investment as well as the probability of success. The benefits of using Monte Carlo simulation to analyze a risky investment are demonstrated using an ethanol plant as an example.economic feasibility analysis, ethanol feasibility, risk management, stochastic simulation, Agribusiness, Research and Development/Tech Change/Emerging Technologies,

Tactical Opportunities, Risk Attitude and Choice of Farming Strategy: an Application of the Distribution Method

When assessing farming strategies, it is important to account for the opportunities provided for tactically adjusting to outcomes of risk. The hypothesis that accounting for tactical adjustment is more important than accounting for risk attitude was supported in this study with regard to identifying the optimal drainage recirculation strategy for an irrigated dairy farm. Failing to account for tactical adjustment would lead to a sub‐optimal choice, costing the farmer about A$3 100 in present value terms. In contrast, failing to account for risk aversion would not affect the strategy chosen. The distribution method was found to be well suited to modelling tactical adjustment.Research and Development/Tech Change/Emerging Technologies,

Deterministic versus Stochastic Sensitivity Analysis in Investment Problems: An Environmental Case Study

Sensitivity analysis in investment problems is an important tool to determine which factors can jeopardize the future of the investment.Information on the probability distribution of those factors that affect the investment is mostly lacking.In those situations the analysts have two options: (i) apply a method that does not require knowledge of that distribution, or (ii) make assumptions about the distribution.In both approaches sensitivity analysis should result in practical information about the actual importance of potential factors.For approach (i) we apply statistical design of experiments (DOE) in combination with regression analysis or meta-modeling.For approach (ii) we investigate five types of relationships between the model output and each individual factor; Pearson's p, Spearman's rank correlation, and location, dispersion, and statistical dependence.We introduce two distribution types popular with practitioners: uniform and triangular.In an environmental case study both approaches identify the same factors as important.sensitivity analysis;experimental design;investment analysis;simulation

LOCATION OF A MIXALCO PRODUCTION FACILITY WITH RESPECT TO ECONOMIC VIABILITY

Monte-Carlo simulation modeling is used to perform a feasibility study of alternative locations for a MixAlco production facility. Net present value distributions will be ranked within feasible risk aversion boundaries. If MixAlco is a profitable investment, it would have a major impact on the fuel oxygenate and gasoline markets.Resource /Energy Economics and Policy,

Effect of electricity market price uncertainty modelling on the profitability assessment of offshore wind energy through an integrated lifecycle techno-economic model

According to the Contracts for Difference (CfD) scheme introduced to support the deployment of offshore wind installations, an electricity generation party is paid the difference between a constant "strike price" (determined be means of a competitive auction) and the average UK market electricity price for every MWh of power output produced. The scheme lasts for 15 years, after which the electricity output is sold on the average market price. To this end, estimating the long term profitability of the investment greatly depends on the forecasted market prices. This paper presents the simulation results of future electricity prices based on three different simulation methods, namely: the Geometric Brownian motion (GBM), the Autoregressive Integrated Moving average (ARIMA) and a model combining Mean-Reversion and Jump-Diffusion (MRJD) processes. A number of simulation paths are generated for a time horizon of 10 years and they are introduced to a fully integrated techno-economic model developed by the authors. As a result, joint probability distributions of the NPV derived from the three different methods are presented. This study is relevant to investors and policy makers to check the viability of an investment and to predict its stochastic temporal return profile

Harvest Rules When Price Depends On Quantity: The Case of Norwegian Spring Spawning Herring (Clupea harengus L.)

For fish stocks where the unit price of harvest is constant and unit harvest costs are independent of quantity and non-increasing in biomass, regulation based on target escapement (TE) has been shown to optimise the net present value (NPV) of harvest to society. This result has also been shown to hold for fish stocks characterised by stochastic recruitment, whereas a more asymptotic approach has been advocated if price depends on quantity. In this paper, these theoretical results are empirically investigated. Our case is the Norwegian spring spawning herring fishery, a stock with stochastic recruitment and price decreasing in harvest. For this fishery, the theoretical results are verified in that TE can no longer claim optimality. At constant prices, TE is found to outperform a more gradual approach, but this comes at a cost of a lower expected spawning stock at the end of the period investigated.fisheries management, harvest rules, target escapement, herring, Resource /Energy Economics and Policy, Q22, Q28,