Investment decision-making in clean energy under uncertainties: A real options approach

International commitments on emission reduction and the deterioration of fossil energy resources have caused more research attention to clean energy production. Getting the optimal investment portfolio in infrastructure for energy supply and consumption is a minimum requirement to enable the transition towards a sustainable energy system. Due to their environmental benefits, advanced biofuel and clean power generation are expected to play an important role in the future in transportation sector and electricity sector, respectively. In this dissertation, a real options approach is adopted for valuating clean technology investment portfolios under uncertainty, exploring managerial insights, and examining policy implications. The dissertation consists three parts discussing problems on clean energy investment. Biofuel production investment, motivated by consumption volume mandates in revised Renewable Fuel Standard, is a long-term irreversible investment facing revenue uncertainty given volatile fuel market. Iowa, rich in agricultural residues like corn stover, is a major player in the fulfillment of the cellulosic biofuels mandate. In this first part, we aim to answer the question: Is now a good time for Iowa to start investing in cellulosic biofuels? Using a fast pyrolysis facility as an example, we present a real options approach for valuating the investment of a new technology for producing cellulosic biofuels subject to construction lead time and uncertain fuel price. We conduct a case study, in which the profitability of the project, optimal investment timing, and the impact of project lead time are investigated. The second part extended the previous work by incorporating supply risk and dual sourcing. While corn stover is an abundant source of feedstock for biofuels production in Iowa, there is a potential supply risk due to the following reasons: (1) lack of market; (2) low percentage of farm participation; and (3) yield uncertainty due to the changing weather conditions. The decision maker would consider investing in a land to grow his own feedstock, in addition to the investment of biofuel facility. Land option with the growing of dedicated energy crops has a value-adding effect when operating with the fast pyrolysis facility. And with dual sourcing, the impact from supply uncertainty could be mitigated. A real options approach is used to analyze the optimal investment timing and benefits of the dual sourcing. Risk-aversion has an unexpected effect on investment decision-making, which may cause the investment decision of the value-adding option can be very sensitive to the primary underlying uncertainty, and the immediate action towards land investment can no longer be described with a single fuel price threshold. Policy is deemed as one of the top decisive external factor that impacts the interest of a power producer. All energy projects are prone to policy risk, yet such eventualities are difficult to predict and therefore expensive to insure. In the third part of the study, we extend the uncertainty to the scope of government policy, in addition to considering the critical uncertainty of commodity prices. In this work, we want to examine the timing that an owner of a traditional coal-fired generator adopts in a clean technology when facing two realistic policy uncertainty cases: risk of repealing an existing policy, and risk of a policy change. The investment of a natural gas generator is considered in order to meet the load obligation while maximizing its expected long-run profit with regulated emission-related costs considered. The price uncertainties in electricity, natural gas, and carbon emission, together with policy uncertainty jointly affect profitability and decision-making of the clean technology adoption. A real options approach is applied to investigate the optimal investment decision. The producers are risk avoiding when facing uncertain future policy environment; and this reflects in delaying investment plan and creating a future investment plan that is stubborn to current carbon price. To a risk-neutral price-taking power producer, emission trading is a more effective instrument compared to carbon tax, and shifting from carbon tax to emission permits could more effectively inducing immediate investment in clean technology

Production cost and supply chain design for advanced biofuels

The U.S. government encourages the development of biofuel industry through policy and financial support since 1978. Though first generation biofuels (mainly bio-based ethanol) expand rapidly between the early 1980s and late 2000s, more attention has turned to second generation biofuels, such as cellulosic biofuels, due to the `food-versus-fuel\u27 debate, and potential impact on land use and climate change caused by the development of first generation biofuel production. Over the last few years, a rich literature has arisen on lignocellulosic crops or crop residues being used as biomass feedstock for second generation biorefineries. In this thesis, two types of assessments on cellulosic biofuel production have been conducted: techno-economic analysis of the fast pyrolysis fractionation pathway and supply chain design for the advanced biofuel production. Firstly, the economic feasibility of a fast pyrolysis fractionation facility is examined. The facility takes lignocellulosic biomass feedstock, goes through the pyrolysis process, recovers pyrolysis oil into different fractions, and upgrades the fractions into two main products: commodity chemicals and liquid transportation fuels. The Internal Rate of Return (IRR) of this production pathway is evaluated to be 8.78%. Secondly, mixed integer linear programming models are used to optimize locations and capacities of distributed fast pyrolysis facilities. The supply chain optimization framework is implemented in a case study of Iowa with the goal of minimizing total annual production cost. Comparisons are carried out to investigate the two choices for the centralized refining facility: outsourced to Louisiana or build a refining facility in Iowa. An extension of the supply chain design model to sequential facility location-allocation analysis is also performed for Iowa, taking budget availability and revised Renewable Fuel Standard (RFS2) goal into consideration. The objective is to maximize the net present value (NPV) of the profits over the next 10 years

Computerized beer distribution game management flight simulators : a review

Thesis (M.Eng.)--Massachusetts Institute of Technology, Engineering Systems Division, 2000.Includes bibliographical references (leaf 30).The Beer Game has been used to demonstrate the bullwhip effect often observed in supply chains, i.e. the amplification of demand variance upstream in the supply chain in multiple echelon systems. In recent years, computerized Beer Games have been developed at a number of schools to facilitate or replace the traditional manual game. This thesis reviews five existing computerized Beer Distribution Games, discusses their differences, and introduces a new computerized Beer Game currently being developed. Key words: Beer Distribution Game, Supply Chain Management, System Dynamics, System Thinking, Computer Simulation, Internet, Intranet.by Yihua (Jasmine) Li.M.Eng

Unified Non-Inverting and Inverting PWM AC-AC Converter With Versatile Modes of Operation

This paper proposes unified non-inverting and inverting AC-AC converter (UNI-AC) using pulse width modulation (PWM) for the utility voltage compensation. It offers four effective switching states to regulate the output voltage in bipolar manner, facilitating versatile modes of operation with different number of switching states being modulated. Each mode of the proposed UNI-AC is able to compensate both the grid voltage sag and swell problems due to its bipolar voltage gain. The operational principle and comparison for all these modes are investigated in details. Also, the UNI-AC is reversible and compatible with full range of power factor. Other technical merits offered by the proposed approach include the compact hardware installation, reduced switch voltage stress (also low dv/dt) and decreased control complexity. Detailed analysis and experimental verification are presented in this paper