Comparative evaluation of investment analysis methods: an application in renewable energy auctions between 2011 e 2015

Antônio Vinícius Silva Caldas, Antônio Francisco de Almeida da Silva Júnior

Abstract


Purpose - This work aims to analyze the assertiveness of net present value (NPV) and real options theory (ROT), at the moment of decision making for investments in renewable energy projects, considering the 244 winning projects in the auctions of reserve energy that occurred between 2011 and 2015.

Design/methodology/approach –This is a quantitative study that used real data from 150 wind power and 94 photovoltaic projects available on ANEEL´s website. For data analysis, the confusion matrix, the area under the ROC Curve and the Kappa Index were used.

Findings – It was concluded that NPV is more effective for recommendations to invest in projects with chances to be successful, while ROT is more accurate in suggesting against investing in projects with propensity for failure. It was also found that the degree of agreement between the two techniques is substantial and determined by the level of volatility of real options.

Research limitations/implications – The limitations of this study refer to the difficulties of identifying the reasons that motivated failures in the projects.

Originality/value – Theoretically, this work contributes to identify the characteristics that effectively differentiate ROT from NPV at the time of decision making. Empirically, this work contributes to doing an ex-post analysis of the projects.


Keywords


Net present value; Real options theory; Confusion matrix.

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