Economic analysis of the German regulation for electrical generation projects from biogas applying the theory of real options

Highlights: • Valuation of biogas projects in Germany with Real Options theory. • Use of implicit real options on the German regulatory frameworks. • Use of Binomial and Monte Carlo methods to value the public aids. • Calculation of real options impact on projects' NPV. • Analysis of the impact of public incentives. In this research, four electricity generation projects from biogas are analyzed. The present value of public aid granted by the German Administration in the four projects is calculated by applying real options theory. It is determined that the public aids are greater for the plants of 500 kW of installed capacity, resulting in values of 33.418 euros per megawatt-hour in biogas plants from landfills and 22.334 euros per megawatt-hour in biogas plants from the treatment of sewage. The public aid for the two 5 MW biogas plants from landfills and biogas from wastewater treatment turned out to be equal with a value of 17.222 euros per megawatt-hour. This study has relied on a new methodology to calculate the value of government incentives for electricity generation projects from biogas in Germany, applying real options. It shows the higher cost for the German Administration of biogas plants with lower installed capacity (500 kW), compared to biogas plants with higher installed capacity (5 MW), as a result of granted governmental incentives for electricity generation.