Analysis of renewable energy investment in Iran using real options approach

Many nations’ quick development and progress during the last century may be directly attributed to the widespread use of fossil fuels. particularly during the twentieth century, oil has stood out as a defining feature of human civilization. however, the increasing use of fossil fuels like oil and coal has led to severe problems for the world's ecosystems, national security, and economic prosperity. this article uses the real options technique to examine the interplay between the volatility of diesel prices, electricity prices, and the externality of consuming oil in determining the optimal time to invest in renewable energy. employing the real options approach, it offers a nuanced analysis that underscores the value of flexibility in investment decisions under uncertainty. the methodology facilitates a comprehensive evaluation of various actual option strategies for discretion assessment, contrasting them with traditional decision-making frameworks that often overlook the element of uncertainty. different actual choice approaches for discretion assessment are addressed and compared, as well as the usage of devolution for decision-making. finally, monte carlo simulations compare these techniques to conventional approaches. the findings show that investments in renewable energy have a positive net present value. the timelessness of investing choices is emphasized by the real options method. under the present energy system in iran, switching to renewable energy sources is preferable to maintaining reliance on oil to provide power. policies should encourage investment in renewable energy sources by increasing the cost of using oil or reducing the cost of electricity.