The variable, uncertain nature of climate imposes risk in using solar and building technologies, such as natural ventilation (NV). To maximize the potential benefit from NV while reducing risk, a building could be designed for NV along with the “real option” to install mechanical cooling in the future, if needed. Traditional evaluation procedures use expected values, which fail to acknowledge the value of uncertainty when system performance is a nonlinear function of the uncertain variable. A real options methodology is proposed to evaluate the flexible building design under climate uncertainty. A building energy simulation is used to obtain probability distributions of the cost savings of the option-based NV strategy and of the time when (if) the mechanical cooling system is installed. A simplified stochastic temperature generator is used, and it may be used to evaluate real options for other technologies sensitive to future climate. The results of a real options analysis provide information to project investors on (a) the likelihood of exercising the option, and (b) the improved financial value of the technology when implemented with a flexible strategy.
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e-mail: glicks@mit.edu
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A Real Options Methodology for Evaluating Risk and Opportunity of Natural Ventilation
Leon R. Glicksman,
e-mail: glicks@mit.edu
Leon R. Glicksman
Massachusetts Institute of Technology
, Building Technology, Departments of Architecture and Mechanical Engineering, 77 Massachusetts Avenue, Rm. 5-418, Cambridge, MA 02139
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Gabriel Lopez-Betanzos
e-mail: galb@alum.mit.edu
Gabriel Lopez-Betanzos
Massachusetts Institute of Technology
, Department of Computer Science and Electrical Engineering, 77 Massachusetts Avenue, Cambridge, MA 02139
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Lara V. Greden
Leon R. Glicksman
Massachusetts Institute of Technology
, Building Technology, Departments of Architecture and Mechanical Engineering, 77 Massachusetts Avenue, Rm. 5-418, Cambridge, MA 02139e-mail: glicks@mit.edu
Gabriel Lopez-Betanzos
Massachusetts Institute of Technology
, Department of Computer Science and Electrical Engineering, 77 Massachusetts Avenue, Cambridge, MA 02139e-mail: galb@alum.mit.edu
J. Sol. Energy Eng. May 2006, 128(2): 204-212 (9 pages)
Published Online: December 8, 2005
Article history
Received:
June 9, 2005
Revised:
December 8, 2005
Citation
Greden, L. V., Glicksman, L. R., and Lopez-Betanzos, G. (December 8, 2005). "A Real Options Methodology for Evaluating Risk and Opportunity of Natural Ventilation." ASME. J. Sol. Energy Eng. May 2006; 128(2): 204–212. https://doi.org/10.1115/1.2188959
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