The Valuation of Geothermal Power Projects in Indonesia Using Real Options Valuation

Abstract

Geothermal power project should be carefully evaluated, because not only the project is large-scale and high-risk, but also huge investments are needed to make the project profitable. The purpose of this study is to evaluate and analyze the present value of the geothermal power plant projects in Indonesia using net present value and real options valuation approach to obtain better project value that indicates profitable investments. Project value determined based on Net Present Value (NPV). The Monte Carlo Simulation calculated NPV based on discount rate, production volume, and operation and maintenance (O&M) cost. The risk of the project defined with 3 scenarios to obtain NPV and calculate Expected Net Present Value (ENPV). The result of this study showed Real Options Valuation obtained the highest project value indicating a higher return of the project that was previously undervalued using NPV and ENPV. Real Options Valuation approach improved the project value by incorporating scenario analysis and strategic option in the valuation process.