Real Options Valuation of Green Hydrogen from Small Hydropower: Binomial Tree Approach Explained
1. Introduction The integration of green hydrogen production with small hydropower plants presents a promising pathway toward sustainable and decentralized energy systems. As global energy markets face increasing uncertainty, traditional investment evaluation methods often fail to capture the value of flexibility and future opportunities. This research introduces the real options approach as a robust framework for valuing hydrogen production under uncertainty. By applying a binomial tree methodology, the study models dynamic decision-making processes, enabling stakeholders to optimize investment timing and operational strategies while supporting the transition to a low-carbon energy future. 2. Real Options Approach in Energy Investment This topic explores the theoretical foundation of the real options approach in evaluating renewable energy investments. Unlike traditional net present value methods, real options analysis accounts for uncertainty, managerial flexibility, and sta...