Project Finance and MCDM financial models: An application in renewable energy projects

Tesis por compendio[EN] Academics, managerial and policy making community reinforce that renewable energy investments are one of the most effective instruments to attain CO2 emission reduction targets set by the Kyoto Protocol and by the recent Paris Agreement signed at the Paris climate conference (COP21) in December 2015 in which 195 countries adopted the first-ever universal, legally binding global climate deal. The problem of financing Renewable Energy (RE) projects has become a crucial issue for private and public decision makers worldwide. Budget constraints from governments and limited bank lending capacities have led to a reconsideration of the traditional financial instruments in the RE sector. The lack of credit makes impossible for commercial banks to fund RE projects with traditional loans. Research on new financing techniques for RE projects, such as Project Finance (PF) has gained interest in recent years. PF is a recent technique applied in large investments projects. During the last decades of the 20th century new public private partnership schemes enabled large infrastructure, energy and environmental projects. In these sectors PF has been used to reduce cost agency conflicts and better risk management. There is a wide number of contributions underlying the relevance of RE, however there is a lack of research on the financial aspects of RE projects. This research aims to make several contributions. First, to provide a better understanding of the PF technique and its use in the RE sector. Second, to fill the gap of research on financial aspects of RE in the literature by reviewing contributions of MCDM to RE project evaluation from the investor's perspective. Third, we propose a MPDM Moderate Pessimism Decision Making model, which adds to the rational financial evaluation of investment opportunities a set of non-financial factors that affects the investor's decisions. Finally, within the illustrative example, we apply this multi-criteria decision making process to help banks to decide if they must join a project or not.[ES] Investigadores, comunidad empresarial y clase política destacan que la inversión en energías renovables es uno de los instrumentos más efectivos para alcanzar los objetivos de reducción de CO2 establecidos por el reciente acuerdo firmado en la conferencia de Paris (COP21) en diciembre de 2015, en el cual, 195 países adoptaron el primer acuerdo universal y jurídicamente vinculante de la historia. El problema de la financiación de los proyectos de energía renovable (RE) es un tema crucial para cualquier decisor público o privado. Las limitaciones presupuestarias de los gobiernos y la falta de crédito han provocado que se reconsideren los instrumentos de financiación en el sector de las RE, por lo tanto, la investigación en nuevas técnicas de financiamiento para los proyectos de RE, como Project Finance (PF) ha ganado interés en los últimos años. PF es una técnica que se aplica en grandes proyectos de inversión. A finales del Siglo XX, los nuevos esquemas de colaboración público-privadas han permitido llevar a cabo grandes proyectos de infraestructuras y de RE. En estos sectores, el PF se ha utilizado para reducir costes, conflictos y mitigar riesgos. Numerosas contribuciones científicas subrayan la importancia de la RE, sin embargo hay un vacío en la investigación sobre los aspectos financieros de los proyectos de RE. Esta tesis tiene como objetivo aportar varias contribuciones. En primer lugar, proporcionar una mejor comprensión de la técnica del PF y su uso en el sector de las RE. En segundo lugar, cubrir el vacío existente en la literatura sobre la investigación de los aspectos financieros de las RE mediante la revisión de las contribuciones sobre MCDM para la evaluación de los proyectos de RE desde el punto de vista del inversor. En tercer lugar, se propone un modelo MPDM (Moderate Pessimism Decision Making), el cual añade a la evaluación financiera racional de oportunidades de inversión, un conjunto de factores no financieros que afectan a las decisiones de los inversores. Finalmente, se aplica este modelo multicriterio de toma de decisiones para ayudar a decidir a los bancos si deben unirse al proyecto.[CA] Investigadors, comunitat empresarial i classe política, destaquen que la inversió en energies renovables és un dels instruments més efectius per assolir els objectius de reducció de les emissions de CO2 establerts pel recent acord signat a la conferència de Paris (COP21) al desembre de 2015, mitjançant el qual, 195 països van adoptar el primer acord universal i jurídicament vinculant de la història. El problema del finançament dels projectes d'energia renovable (RE) s'ha convertit en un tema crucial per a qualsevol decisor públics i privats. Les limitacions pressupostàries dels governs i La falta de crèdit han provocat que es reconsiderin els instruments de finançament en el sector de les RE, per tant, la investigació en noves tècniques de finançament per als projectes de RE, com el Project Finance (PF) ha guanyat interès en els últims anys. PF és una tècnica que s'aplica en grans projectes d'inversió. Durant les últimes dècades del Segle XX, els nous esquemes de col-laboració publico-privades han permès portar a terme grans projectes d'infraestructures i de RE. En aquests sectors, el PF s'ha utilitzat per reduir costos, conflictes i gestionar millor els riscos. Existeixen nombroses contribucions científiques que subratllen la importància de la RE, però hi ha un buit en la investigació pel que fa als aspectes financers dels projectes de RE. Aquesta tesis té com a objectiu aportar diverses contribucions. En primer lloc, proporcionar una millor comprensió de la tècnica del PF i el seu ús en el sector de les RE. En segon lloc, cobrir el buit existent en la literatura sobre la investigació dels aspectes financers de les RE mitjançant la revisió de les contribucions sobre MCDM per a l'avaluació dels projectes de RE des del punt de vista de l'inversor. En tercer lloc, es proposa un model MPDM Moderate Pessimism Decision Making, que afegeix a l'avaluació financera racional d'oportunitats d'inversió, un conjunt de factors no financers que afecten les decisions dels inversors. Finalment, mitjançant un exemple il-lustratiu, s'aplica aquest model multicriteri de presa de decisions per ajudar a decidir als bancs si han de unir-se al projecte.Mayor Vitoria, F. (2016). Project Finance and MCDM financial models: An application in renewable energy projects [Tesis doctoral no publicada]. Universitat Politècnica de València. https://doi.org/10.4995/Thesis/10251/73067TESISCompendi

Financial risk management in renewable energy projects: A multicriteria approach

[EN] The problem of financing renewable energy (RE) projects has become a crucial issue for private and public decision-makers worldwide. Based on the European experience, the lack of credit makes it difficult for commercial banks to fund RE projects with traditional loans. In recent years, Project Finance has been widely used as a mechanism for funding RE projects. Project Finance decisions from lenders are made in a traditional way including quantitative financial criteria and qualitative risk assessment for non-financial criteria. In this paper, we show how the VIKOR method is applied to the selection of RE projects to be funded by commercial banks when using Project Finance. The method is combined with the AHP method for weighting the importance of the different criteria. We propose a multicriteria approach to select RE projects in which the decision maker takes into consideration financial criteria and a set of non-financial criteria regarding the technological, political-legal and socio-environmental risks of RE projects. In order to gain insight into the RE financial decision-making process, the paper makes a contribution to research in the financial field of RE investments and proposes some suggestions for managerial and practical decision making.Garcia-Bernabeu, A.; Mayor-Vitoria, F.; Bravo Selles, M.; Pla Santamaría, D. (2019). Financial risk management in renewable energy projects: A multicriteria approach. Journal of Management Information and Decision Sciences. 22(4):360-371. http://hdl.handle.net/10251/164156S36037122

Multiple-criteria cash-management policies with particular liquidity terms

[EN] Eliciting policies for cash management systems with multiple assets is by no means straightforward. Both the particular relationship between alternative assets and time delays from control decisions to availability of cash introduce additional difficulties. Here we propose a cash management model to derive short-term finance policies when considering multiple assets with different expected returns and particular liquidity terms for each alternative asset. In order to deal with the inherent uncertainty about the near future introduced by cash flows, we use forecasts as a key input to the model. We express uncertainty as lack of predictive accuracy and we derive a deterministic equivalent problem that depends on forecasting errors and preferences of cash managers. Since the assessment of the quality of forecasts is recommended, we describe a method to evaluate the impact of predictive accuracy in cash management policies. We illustrate this method through several numerical examples.Salas-Molina, F.; Pla Santamaría, D.; Garcia-Bernabeu, A.; Mayor-Vitoria, F. (2020). Multiple-criteria cash-management policies with particular liquidity terms. IMA Journal of Management Mathematics. 31(2):217-231. https://doi.org/10.1093/imaman/dpz010S217231312Abdelaziz, F. B., Aouni, B., & Fayedh, R. E. (2007). Multi-objective stochastic programming for portfolio selection. European Journal of Operational Research, 177(3), 1811-1823. doi:10.1016/j.ejor.2005.10.021Aouni, B., Ben Abdelaziz, F., & La Torre, D. (2012). The Stochastic Goal Programming Model: Theory and Applications. Journal of Multi-Criteria Decision Analysis, 19(5-6), 185-200. doi:10.1002/mcda.1466Aouni, B., Colapinto, C., & La Torre, D. (2014). Financial portfolio management through the goal programming model: Current state-of-the-art. European Journal of Operational Research, 234(2), 536-545. doi:10.1016/j.ejor.2013.09.040Baccarin, S. (2009). Optimal impulse control for a multidimensional cash management system with generalized cost functions. European Journal of Operational Research, 196(1), 198-206. doi:10.1016/j.ejor.2008.02.040Ballestero, E. (2001). Stochastic goal programming: A mean–variance approach. European Journal of Operational Research, 131(3), 476-481. doi:10.1016/s0377-2217(00)00084-9Ballestero, E., & Romero, C. (1998). Multiple Criteria Decision Making and its Applications to Economic Problems. doi:10.1007/978-1-4757-2827-9Bemporad, A., & Morari, M. (1999). Control of systems integrating logic, dynamics, and constraints. Automatica, 35(3), 407-427. doi:10.1016/s0005-1098(98)00178-2Cabello, J. G. (2013). Cash efficiency for bank branches. SpringerPlus, 2(1). doi:10.1186/2193-1801-2-334García Cabello, J., & Lobillo, F. J. (2017). Sound branch cash management for less: A low-cost forecasting algorithm under uncertain demand. Omega, 70, 118-134. doi:10.1016/j.omega.2016.09.005Charnes, A., & Cooper, W. W. (1959). Chance-Constrained Programming. Management Science, 6(1), 73-79. doi:10.1287/mnsc.6.1.73Charnes, A., & Cooper, W. W. (1977). Goal programming and multiple objective optimizations. European Journal of Operational Research, 1(1), 39-54. doi:10.1016/s0377-2217(77)81007-2Constantinides, G. M., & Richard, S. F. (1978). Existence of Optimal Simple Policies for Discounted-Cost Inventory and Cash Management in Continuous Time. Operations Research, 26(4), 620-636. doi:10.1287/opre.26.4.620Moraes, M. B. da C., & Nagano, M. S. (2014). Evolutionary models in cash management policies with multiple assets. Economic Modelling, 39, 1-7. doi:10.1016/j.econmod.2014.02.010Da Costa Moraes, M. B., Nagano, M. S., & Sobreiro, V. A. (2015). Stochastic Cash Flow Management Models: A Literature Review Since the 1980s. Decision Engineering, 11-28. doi:10.1007/978-3-319-11949-6_2Eppen, G. D., & Fama, E. F. (1969). Cash Balance and Simple Dynamic Portfolio Problems with Proportional Costs. International Economic Review, 10(2), 119. doi:10.2307/2525547Gormley, F. M., & Meade, N. (2007). The utility of cash flow forecasts in the management of corporate cash balances. European Journal of Operational Research, 182(2), 923-935. doi:10.1016/j.ejor.2006.07.041Gregory, G. (1976). Cash flow models: A review. Omega, 4(6), 643-656. doi:10.1016/0305-0483(76)90092-xHerrera-Cáceres, C. A., & Ibeas, A. (2016). Model predictive control of cash balance in a cash concentration and disbursements system. Journal of the Franklin Institute, 353(18), 4885-4923. doi:10.1016/j.jfranklin.2016.09.007Higson, A., Yoshikatsu, S., & Tippett, M. (2009). Organization size and the optimal investment in cash. IMA Journal of Management Mathematics, 21(1), 27-38. doi:10.1093/imaman/dpp015Miller, M. H., & Orr, D. (1966). A Model of the Demand for Money by Firms. The Quarterly Journal of Economics, 80(3), 413. doi:10.2307/1880728Miller, T. W., & Stone, B. K. (1985). Daily Cash Forecasting and Seasonal Resolution: Alternative Models and Techniques for Using the Distribution Approach. The Journal of Financial and Quantitative Analysis, 20(3), 335. doi:10.2307/2331034Penttinen, M. J. (1991). Myopic and stationary solutions for stochastic cash balance problems. European Journal of Operational Research, 52(2), 155-166. doi:10.1016/0377-2217(91)90077-9Prékopa, A. (1995). Stochastic Programming. doi:10.1007/978-94-017-3087-7Salas-Molina, F. (2017). Risk-sensitive control of cash management systems. Operational Research, 20(2), 1159-1176. doi:10.1007/s12351-017-0371-0Salas-Molina, F., Martin, F. J., Rodríguez-Aguilar, J. A., Serrà, J., & Arcos, J. L. (2017). Empowering cash managers to achieve cost savings by improving predictive accuracy. International Journal of Forecasting, 33(2), 403-415. doi:10.1016/j.ijforecast.2016.11.002Salas-Molina, F., Pla-Santamaria, D., & Rodriguez-Aguilar, J. A. (2016). 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Financial Management, 16(4), 45. doi:10.2307/366610

Project finance recent applications and future trends: the state of the art

This paper provides a review of the state of the art of project finance methodology. The growing body of literature in this field serves to emphasize the increasing use and new areas of application of project finance techniques. The paper attempts to describe the main features of project finance, to explain the role of the participants, and the main contractual arrangements. Reviewing the state of the art of project finance provides a special opportunity to draw attention to the main challenges of this technique and to identify new trends.Garcia-Bernabeu, A.; Mayor Vitoria, F.; Mas Verdú, F. (2015). Project finance recent applications and future trends: the state of the art. International Journal of Business and Economics. 14(2):159-178. http://hdl.handle.net/10251/67894S15917814

Big Data Analysis Tools Combined with AHP for Improving Bank Services Sales

[EN] This paper deals with two important issues related to the decision making in the financial field: Big Data and Multicriteria Decision Making (MCDM) methods. To handle the combination between them, we apply the so-called MapReduce paradigm, which is widely deployed in big data analysis, and the Analytic Hierarchy Process (AHP), which is the most used method among the MCDM methodologies. The main gap to cover is shown in two directions; on the one hand, how big data analysis can help to overcome the limitations of methodologies such as AHP when a vast number of alternatives are present, on the other hand, we look at how MCDM methods can help big data analysis to go one step beyond, that is to say, to move from the predictive to the prescriptive analysis. To illustrate the whole approach, we show its application to a real world decision problem concerning the sale of travel insurances. Our methodology returns an accurate ranking of potential clients before being contacted by the sales agent working for a commercial bank. So it helps to the sales profession by contributing to the creation of value for customers and to the sales professionals by optimizing their functions.Mayor-Vitoria, F.; Garcia-Bernabeu, A.; Pla Santamaría, D.; Salas-Molina, F.; Nor Aida, AR. (2019). Big Data Analysis Tools Combined with AHP for Improving Bank Services Sales. International Journal of Recent Scientific Research. 10(12):36216-36224. https://doi.org/10.24327/ijrsr.2019.1012.4882S3621636224101

Digitalization and Leap Frogging Strategy Among the Supply Chain Member: Facing GIG Economy and Why Should Logistics Players Care?

This article integrates the concept of leap frogging strategy and digitalization as a key strategy for the sustainability of logistics players in facing up with GIG economy. At present, business organization are moving towards Industry 5.0 (internet of thought) and GIG economy where the traditional way of fully relying on full time workers are no longer relevant. The world of work is changing. From organizational view, leap frogging strategy with technological advancement are significant to achieve competitive advantage to ensure the continuity of business. While from worker perspective, having technology driven talent is a must to face new business economy called as GIG economy. In other words, all workers in every industry including logistics should ensure they have technology driven talent in his/her portfolio to remain competitive in the working world. Therefore, the aim of this study is to explore the applicability of Industry 5.0 such as digitalization and mobile marketing to logistics players; to make them more visible to customer and competitor. Single case study method was adopted to study on the perspective as discussed above more in-depth. Findings from this single case study is transferable as it provides rich explanation and discussion from one of the earliest logistics company in Malaysia, with logistics experience almost five (5) decades in providing logistics services. The qualitative findings pointed out four key areas for LSP improvement. Firstly, all LSPs should go for transition process with their business model to provide them with new revenue - logistics digital business and allow them to be more visible to their customer by fully utilizing the promotion activities online. Secondly, every agreement with customer should be put into contract and it is paperless within system. Thirdly, digital payment is a must to all logistics players to practice in order for them to compete in digital era. Finally, and inevitability, to sustain in the business, logistics may move to become intelligent logistics players with carrying no asset and just focus on negotiating contracts with customers. This term refers to practising logistics players with no assets or less assets centric. In principle, the company does not own asset but able to provide logistics services (for example fleet and warehouses) by aggregating “information about assets†from people who do own them by leveraging on data. This article contributes to the logistics study by matching issue on digitalization and GIG economy in logistics sector. More work on future of logistics is needed with large sample across the globe in order to obtain more data to help the logistics players depict themselves in new economy

A multicriteria extension of the efficient market hypothesis

Challenging the Efficient Market Hypothesis (EMH) has been a recurrent topic for researchers and practitioners since its formulation. Hundreds of empirical studies claim to either prove or disprove the EMH by means of a number of heterogeneous methods. Even though the EMH is usually adjusted to a measure of risk, there is a lack of a formal analysis within a multiple-criteria context. In this paper, we propose a extension of the EMH that accommodates the foundations of multiple-criteria decision analysis. To this end, we rely on a family of parametric signed dissimilarity measures to assess multidimensional performance differences. Since normalization is a critical step in our approach to avoid meaningless comparisons, we present two novel theoretical results connecting different normalization techniques. This multicriteria extension provides a common framework on which to add empirical evidence regarding the EMH testing

Claves para la internacionalización de la empresa

Este libro parte del principio de que las empresas operan en un contexto global y de que para tomar decisiones de producción, comercialización o financiación es necesario comprender el universo de las transacciones económicas entre múltiples agentes en un plano internacional. Con esta finalidad, el libro se estructura en dos partes. En la primera parte, se describen los retos a los que se enfrenta la economía mundial, los indicadores más relevantes para medir, analizar y comparar la evolución de las economías, así como los rasgos más destacados del actual sistema de organismos internacionales y procesos de integración regional. En la segunda parte, se desarrollan los aspectos fundamentales que necesita conocer cualquier empresa que quiera realizar una operación internacional. A partir del diagnóstico de internacionalización, la empresa ha de definir la estrategia de internacionalización. Para buscar nuevos mercados ha de conocer las variables que son clave para analizar tanto el potencial de mercado como los riesgos a los que se enfrenta. En cuanto a la operativa de la internacionalización se describen los principales aspectos en cuanto a financiación y medios de cobro y pago internacional,estrategias de marketing internacional o gestión de la cadena de suministro y logística.García Bernabeu, AM.; Mayor Vitoria, F. (2019). Claves para la internacionalización de la empresa. Editorial Universitat Politècnica de València. http://hdl.handle.net/10251/131034EDITORIA

A MCDM approach for project finance selection: An application in the renewable energy sector

Renewable energy (RE) is emerging as a solution in order to replace fossil fuels and become the primary source of energy consumption. Investments in the RE sector involve huge amounts of capital but also many risks. Public sector plays an important role in promoting RE projects but due to the need for reducing public expenditure the private sector becomes essential in financing this type of projects. Project Finance is widely used in RE projects and is especially attractive to the private sector because it can fund major projects off balance sheet. The objective of this paper is to present a decision making tool for helping the private sector on the selection process of RE projects to be funded. The problem could be considered as a multiple criteria decision-making problem where both, financial and non-financial criteria have to be taken into account. Objective aggregation weights for those criteria are obtained using the Moderate Pessimism Decision Making approach and a final ranking of the projects is obtained