Optimizing the Level of Renewable Electric R&D Expenditures Using Real Options Analysis

Michelle Kubik

    Research output: NRELTechnical Report


    One of the primary objectives of the United States' federal non-hydro renewable electric R&D program is to promote the development of technologies that have the potential to provide consumers with stable and secure energy supplies. In order to quantify the benefits provided by continued federal renewable electric R&D, this paper uses 'real option' pricing techniques to estimate the value ofrenewable electric technologies in the face of uncertain fossil fuel prices. Within the real options analysis framework, the current value of expected future supply from renewable electric technologies, net of federal R&D expenditures, is estimated to be $30.6 billion. Of this value, 86% can be attributed to past federal R&D efforts, and 14% can be attributed to future federal R&D efforts,assuming continued federal R&D funding at $300 million/year. In addition, real options analysis shows that the value of renewable electric technologies increases as current and future R&D funding levels increase. This indicates that the current level of federal renewable electric R&D funding is sub-optimal low.
    Original languageAmerican English
    Number of pages49
    StatePublished - 2003

    NREL Publication Number

    • NREL/TP-620-31221


    • discounted cash flow model
    • market value
    • null
    • null
    • R&D expenditures
    • real options analysis
    • real options model
    • renewable electric R&D
    • renewable energy (RE)


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