Evaluation of R&D investments in wind power in Korea using real option

In recent years, many countries put an emphasis on the development and deployment of renewable energy to cope with the global environmental crisis such as depletion of fossil energy, climate convention to control emissions of greenhouse gases. Among the various new and renewable energy sources, the Korean government selected wind power energy as one of the core areas for R&D investments. In this paper, we evaluate the economic value of the investment in wind power energy R&D in Korea and optimal deployment timing of wind power technology by using the real option approach. The real option model adopted in this paper assumes that a decision maker has a compound option to abandon, deployment, or continue the R&D. As a result by using empirical data of Korea, it is found that there exists a considerable amount of positive economic value of investments in wind power energy R&D.