THE OPTION VALUE OF RENEWABLE ENERGY - THE CASE OF CLIMATE-CHANGE

Decision makers receive mired signals from the investment literature o n when it is appropriate to develop renewable energy technology substi tutes for fossil fuels. This question is becoming more important as at tention has become focused on climate change. With the assumptions tha t information is revealed as time passes and the new technologies take a long time to develop, renewable energy alternatives are move attrac tive than they appear on the basis of the net present value criterion that ignores option value. Option value represents the value of flexib ility to use or discard new technologies.