Title Application of Real Option based Life Cycle Cost Analysis for Reflecting Operational Flexibility in Solar Heating Systems
Authors Choi, Ju-Yeong ; Kim, Hyeong-Bin ; Son, Myung-Jin ; Hyun, Chang-Taek
DOI http://dx.doi.org/10.6106/KJCEM.2015.16.4.070
Page pp.70-79
ISSN 2005-6095
Keywords Environmental friendly ; Life Cycle Cost Analysis ; Solar heating System ; Real Option ; Strategic Decision
Abstract With the rise of the interest in a renewable system, the importance of the Life Cycle Cost Analysis(LCCA), an economic evaluation tool, has been increasing. However, there is an inevitable gap between a real cost and anestimation from LCCA because of the uncertainty of the external environment in real world. As the input variables in ananalysis, such as a real discount rate and an energy cost, ares ubject to change as time goes by, strategic decision on th ecurrent operating system is made depending on the real cost. Current economic evaluation approaches have treated only the fluctuation of input variables without consideration of the flexibility in operation, which has consequently led to the impairment on the reliability of LCCA. Therefore, new approachn eeds to be proposed to consider both the uncertainty o f input variables and operational flexibility. To address this issue, the application of the Real Option to LCCA is presented in this study. Through a case analysis of LCCA of a solar heating system, the limits and current status of LCCA are identified. As a result, quantitative presentation of strategic decisions has been added in the new approach to implement the traditional approach.