Abstract
The electricity shortage, the natural disasters and the emission of greenhouse gasses have been challenges that Vietnam has to confront to sustain high economic growth in the long-term. We are moving forward to “Smart City” project in Japan that brings a better life for citizens through public services, utilization of resources and less impact on environment. However, this project requires huge investment of financial amounts and long term to profitability under uncertainties. Therefore, real options analysis is used as a theoretical framework to better account for the technological and market uncertainties and irreversibility that impact the investment and innovation decisions of firms. This paper shows how to use the quadranomial approach for two sources of uncertainty and with compound rainbow options. The specific one is if the investors decide to invest in R&D of the project, they will get the different carbon credit values created from this project changing at the same volatility of project’s products in each investing node through Clean Development Mechanism. From this volatility estimated from fuel price data and two different net present values of project, this paper created the value-based event tree to value research and development (R&D) project which influences the dynamic shaping of investment decisions of firms in the green industry.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Brealey, R. A., & Myers, S. C. (1996). Principles of corporate finance. New York, NJ: McGraw-Hill.
Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton, NJ: Princeton University Press.
Du, J., Jiao, Y.-Y., & Jiao, J. (2006). A real-option approach to flexibility planning in reconfigurable manufacturing systems. The International Journal of Advanced Manufacturing Technology, 28(11–12), 1202–1210.
Energy in Japan. (2015). Retrieved Sep 2015 from https://en.wikipedia.org/wiki/Energy_in_Japan.
Eppink, D. J. (1978). Planning for strategic flexibility. Long Range Planning, 11(4), 9–15.
Fujiwara, T. (2008). Modeling of strategic partnership of biotechnological start-up by option-game: Aiming at optimization between flexibility and commitment. Journal of Advances in Management Research, 5(1), 28–45.
Fujiwara, T., & Thu, H. N. (2014). Option-Games on Infrastructure investment in Vietnam focused on Smart City Project. In Conference of Portland International Center for Management of Engineering and Technology (PICMET).
Global Smart Grid Federation. (2014). Japan’s Approaches to Smart Grid and Smart Community Deployment. Newsletter.
Grayburn, J. (2012). Real options and investment decision making. Reference 32/12 of Office of Gas and Electricity Markets.
Huchzermeier, A. (2000). The real option value of operational and managerial flexibility in global supply chain networks risk management. Berlin: Springer.
International Energy Statistics (EIA). (2012–2015). US Energy Information Administration. Country Analysis Briefs, Vietnam, Japan.
IBM-Smart Cities. (2013). Retrieved Aug 2013 from http://www.ibm.com/smarterplanet/ca/en/smarter_cities/overview/.
Manh, H. H. (2013). Status of Domestic Carbon Market in Vietnam. The 4th Workshop on enhancing the regional distribution of CDM projects in Asia and the Pacific-Oppotunities for CDM and carbon markets, Manila, Philippines.
McAneney, J., & Berkman, H. (2000). Valuing new product development and analysing license agreements for intellectual property. Auckland, NJ: Arthur Andersen.
Natural Resources and Electricity Supply in Vietnam. (2013). Retrieved September, 2013 from http://isponre.gov.vn/home/dien-dan/984-ngun-tai-nguyen-nng-lng-vit-nam-va-kh-nng-ap-ng-nhu-cu-phat-trin-kinh-t; http://www.sggp.org.vn/thegioi/2013/4/315009/; http://www.ft.com/intl/cms/s/0/6d3796fe-e8e6-11e0-ac9c-00144feab49a.html#axzz2vOQPddL7, 2011.
Schwab, K. (2011). The global competitiveness report 2011–2012. World Economic Forum.
Schwartz, E. S., & Trigeorgis, L. (2001). Real options and investment under uncertainty: Classical readings and recent contributions. Cambridge, NJ: The MIT Press.
Smit, H. T. J., & Trigeorgris, L. (2004). Strategic investment: Real options and games. Princeton, NJ: Princeton University Press.
Sushil, (2015). Valuation of flexibility. Global Journal of Flexible Systems Management, 16(3), 219–220.
SustainableBusiness.com, Japan Moving Forward on Smart Cities. (2013). Retrieved August, 2013 from http://www.sustainablebusiness.com/index.cfm/go/news.display/id/24555.
Thanh N. N., & Minh, H. D. (2009). Economic Potential of Renewable Energy in Vietnam’s Power Sector. Energy Policy 37. Centre International de Recherche sur l’Environnement et le Développement, CIRED-CNRS.
Trigeorgis, L., & Mason, S. P. (1987). Valuing managerial flexibility. Midland Corporate Finance Journal, 5(1), 14–21.
Trong, T. P. (2012). Development of energy industry in Vietnam, HCM City. Report of New & Renewable Energy in Vietnam.
Toshiba, Smart Community. (2013). Retrieved Sep 2013 from http://www.toshiba.co.jp/env/en/vision/smart.htm.
Toshiba. (2014). Retrieved 1 Sep 2014 from http://www.toshiba-smartcommunity.com/jp.
Vietnam and World bank sign first emission reductions purchase-agreement for renewable energy development (2014). Retrieved June 2014 from http://www.eurasiareview.com/20122013-vietnam-world-bank-sign-first-emission-reductions-purchase-agreement-renewable-energy-development/.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Ha, N.T., Fujiwara, T. Real Option Approach on Infrastructure Investment in Vietnam: Focused on Smart City Project. Glob J Flex Syst Manag 16, 331–345 (2015). https://doi.org/10.1007/s40171-015-0114-0
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s40171-015-0114-0