This paper examines alternative investment strategies for a biomass-powered District Heating (DH) system for a small city in Northern Minnesota, including Combined Heat & Power (CHP) as a method of producing both heat and electricity. Stochastic, mean-reverting commodity prices and Real Options analysis techniques are also incorporated into a financial examination of the project. The analysis finds that, given certain tax incentives, a DH+CHP project could be attractive for a profit-seeking investor. The analysis also reveals that upfront investment risk could be lowered by using an incremental Real Options approach.
University of Minnesota M.S. July 2014. Major: Applied Economics. Advisor: William Lazarus. 1 computer file (PDF); viii, 132 pages, appendices p. 108-132.
Smale, Andrew D..
Using Mean-Reverting Prices and Real Options to Analyze District Heating and Combined Heat and Power in a Northern Minnesota City.
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