Modified-Decoupled Net Present Value: The Intersection of Valuation and Time scaling of Risk in Energy Sector
| Autor: | Ali Shimbar, Seyed Babak Ebrahimi |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2017 |
| Předmět: | |
| Zdroj: | Environmental Energy and Economic Research, Vol 1, Iss 4, Pp 347-362 (2017) |
| Druh dokumentu: | article |
| ISSN: | 2538-4988 2676-4997 |
| DOI: | 10.22097/eeer.2018.126021.1025 |
| Popis: | Although the practical importance of investment analysis in long-term energy investments is well understood, choosing the proper method has always been a dilemma. In this regard, classic evaluation methods, with a history of almost a century, are mostly favored, but using them in the valuation of long-lasting energy projects has particular shortcomings, nevertheless. The drawbacks mainly stem from two structural problems: a) reflecting risk in rate of return instead of cash flow thus summing up risk and time value of money in a single parameter, b) generalizing the predefined rate of return to all project life time regardless of changing nature of risk. To overcome such drawbacks, a new easy-to-implement method termed Modified-Decoupled Net Present Value (M-DNPV) is proposed that intercepts coupling of risk and time value of money by deducting the risky portion of expected cash flows. To cover the dynamic nature of risk and as a buffer against uncertainty, it is suggested to attribute measured risks to investment lifespan using an "uncertainty coefficient”. Finally, the ability of the new method is shown through a complicated energy investment: an Iranian Petroleum Contract (IPC). |
| Databáze: | Directory of Open Access Journals |
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