The variable, uncertain nature of climate imposes risk in using solar and building technologies, such as natural ventilation (NV). To maximize the potential benefit from NV while reducing risk, a building could be designed for NV along with the “real option” to install mechanical cooling in the future, if needed. Traditional evaluation procedures use expected values, which fail to acknowledge the value of uncertainty when system performance is a non-linear function of the uncertain variable. A real options methodology is proposed to evaluate the flexible building design under climate uncertainty. A building energy simulation is used to obtain probability distributions of the cost savings of the option-based NV strategy and of the time when (if) the mechanical cooling system is installed. A simplified stochastic temperature generator is used, and it may be used to evaluate real options for other technologies sensitive to future climate. The results of a real options analysis provide information to project investors on a) the likelihood of exercising the option, and b) the improved financial value of the technology when implemented with a flexible strategy.
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ASME 2005 International Solar Energy Conference
August 6–12, 2005
Orlando, Florida, USA
Conference Sponsors:
- Solar Energy Division
ISBN:
0-7918-4737-3
PROCEEDINGS PAPER
A Real Options Methodology for Evaluating Risk and Opportunity of Natural Ventilation
Lara V. Greden,
Lara V. Greden
Massachusetts Institute of Technology, Cambridge, MA
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Leon R. Glicksman,
Leon R. Glicksman
Massachusetts Institute of Technology, Cambridge, MA
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Gabriel Lopez-Betanzos
Gabriel Lopez-Betanzos
Massachusetts Institute of Technology, Cambridge, MA
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Lara V. Greden
Massachusetts Institute of Technology, Cambridge, MA
Leon R. Glicksman
Massachusetts Institute of Technology, Cambridge, MA
Gabriel Lopez-Betanzos
Massachusetts Institute of Technology, Cambridge, MA
Paper No:
ISEC2005-76088, pp. 59-69; 11 pages
Published Online:
October 15, 2008
Citation
Greden, LV, Glicksman, LR, & Lopez-Betanzos, G. "A Real Options Methodology for Evaluating Risk and Opportunity of Natural Ventilation." Proceedings of the ASME 2005 International Solar Energy Conference. Solar Energy. Orlando, Florida, USA. August 6–12, 2005. pp. 59-69. ASME. https://doi.org/10.1115/ISEC2005-76088
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