Investment assessment in co-generation with biomass in the presence of uncertainty and flexibility

This work deals with generation expansion from biomass co-generation. A methodology to assess investment decisions, based on cash flow analysis and financial tools, is presented. In order to incorporate the investor risk aversion criterion, a measure of risk given by the probability of obtaining negative cash flows net present values, is employed. Main uncertainties that influence cash flows are taken into account by Monte Carlo simulation and managerial flexibilities given by investment alternatives are compared employing a Real Options approach. Moreover, in order to illustrate the proposed methodology, the paper presents an analysis of the investments opportunities in the Brazilian power market for co-generation from sugar cane bagasse.