School of Business
Real options analysis for smart grid: The role of information technology and public policy
Document Type
Conference Paper
Abstract
Smart cities depend on smart grid for resilient energy delivery and improved energy efficiencies. This paper employs the real option approach (ROA) to study the investment decision of information technology innovation in the case of smart grid adoption under uncertainty. We argue that investing in smart grid is analogous to having the option rights in a financial (American) call option. We propose a model taking the smart grid cost as primary decision variable to identify the optimal first time to adopt smart grid. We conclude that unless government provide sufficient financial support, certain projects would not be economically feasible. The study illustrated the use of ROA an important tool for simulate the impact of public policy on the adoption of the smart grid technology, and provided policy recommendations.
Publication Title
ACM International Conference Proceeding Series
Publication Date
5-27-2015
Volume
27-30-May-2015
First Page
266
Last Page
275
ISBN
9781450336000
DOI
10.1145/2757401.2757429
Keywords
Information Technology, Investment under Uncertainty, Public Policy, Real Options Theory, Smart Grid
Repository Citation
Feng, Shu; Zhang, Jing; and Gao, Yue, "Real options analysis for smart grid: The role of information technology and public policy" (2015). School of Business. 25.
https://commons.clarku.edu/faculty_school_of_management/25
