Hedging risks in the C-ITS road-side unit investment case for Flanders: A real options approach

Abstract

Cooperative intelligent transport systems (C-ITS) deployments for vehicle-to-infrastructure communication require substantial investments from European Member States in road-side units (RSUs) and in central traffic management systems. The promise of numerous societal benefits should justify these public investments. However, C-ITS uptake in passenger cars, and thus the subsequent societal benefits, are highly uncertain. Therefore, here, a case study of Flanders is presented in which real option analysis) is used to help road authorities assess the RSU investment opportunity. The framework combines a detailed cost and benefit model and includes managerial options for the road authority. This technique aims to incorporate the value of the flexibility that is available during the deployment to reduce risk exposure, and as such more accurately appraise the investment. C-ITS uptake in passenger cars was modelled as the major source of uncertainty, as it is the primary driver of societal benefits. While a static RSU investment analysis for Flanders, Belgium, was found to be negative, embedding the option to defer the investment decision to further study C-ITS uptake results in a positive average net present value. The results are useful for any road authority aspiring to roll out C-ITS road-side infrastructure.