Energy Investments

1. Analytical Foundation and Methodologies

   1. Appropriating Payoffs

      • Ricardo G. Barcelona

      Pages 395-454

   2. Doing the Managerial Flexibility Maths

      • Ricardo G. Barcelona

      Pages 455-472

2. Reflections and What Next

   1. Front Matter

      Pages 473-473

      PDF

   2. “So What” and “What Next”

      • Ricardo G. Barcelona

      Pages 475-485

3. Back Matter

   Pages 487-496

   PDF

This book examines what lies behind the uncertainties surrounding the fuel and power markets. Exploring the role of renewables and how they potentially disrupt or create opportunities, it challenges widely accepted wisdoms in investment. The author asks questions such as: Are “business as usual” strategies that favour fossil fuels the best route to future prosperity? What prospects do firms face when their competitors diversify into renewables? Why do generous subsidies to renewables often fail to achieve wide-scale deployment? Illustrating how real options and option games reasoning yield vastly different insights from those gained from NPVs, Energy Investments offers case studies and simulations to demonstrate how firms can benefit from the methods it showcases.  

• fuel
• investment
• option games reasoning
• fossil fuel
• economics
• energy industry
• Investment Analysis
• Decisions under uncertainties
• flexibility
• real options
• option games
• capital budgeting
• subsidies
• energy portfolio
• investments and securities
• sustainability

“Ricardo Barcelona addresses the thornier issues of energy strategy. In this book he moves from the certainties assured by financial modelling to explore the tough questions that astute practitioners ask themselves – why do things never turn out as they were projected? Is energy strategy always going to be a tale of unfulfilled promises? His research findings and his insights make a must read for anyone in this field.” (Patrick H. “Paddy” Miller, Author, Innovation as Usual, Hong Kong) 

“The book offers rigour, depth, and relevance in tackling approaches that prove sustainable and transformational for business and society.” (Juan Miranda, Managing General Director, Asian Development Bank) 

“The book is timely in that it provides good insights on how to address the uncertainty and volatility facing today's energy markets. A good read for anyone involved in the energy sector.” (Stephen A. Paradies, Board Director, Union Bank, and former Chief Financial Officer, AboitizEquity Ventures, Philippines)

“Containing original insights into the financing and economics of the energy industry, this book should be read by those working in and studying the future of the energy sector.” (David Parker, Emeritus Professor of Economics, Cranfield University School of Management, and former member, Competition Commission, United Kingdom)

“The energy industry is at a crossroad. The paradigm is changing although the uncertainty around new technology and lack of clear orientation from policy and regulatory perspectives makes firms’ decision-making more complex. It also raises some expectations in our society that may not be delivered in the medium-term. Ricardo’s book offers a rigorous platform to better frame some energy decisions –both at the policy and the company levels - and offer consistent answers to this very relevant societal challenge.” (Jordi Canals, Dean Emeritus and Professor of IESE Business School, Spain/United States) 

“Shifting European Union policy, falling energy prices, and increased costs of production are cocktails that do not bode well for fossil fuel-based energy supplies. Renewables subsidies add to energy prices that burden citizens and industry. These circumstances push energy managers and policy-makers to seek innovative solutions to producing energy and financing investments. This book is a thoughtful contribution into addressing these issues – and resolving these dilemmas.” (Krzysztof Tchórzewski, Minister of Energy, Government of Poland) 

“Barcelona has performed the Herculean task of integrating several literature streams into a sound framework for energy finance practitioners. The idea of applying dynamic tools from modern finance theory to energy economics and policy is commendable.” (Dr Tarik Driouchi, Reader in Financial Management, King's College London, United Kingdom)

“The author questions the accepted wisdoms of capital budgeting, propose an alternative, and made real options and option games as analytical tools accessible to managers. Real life cases illustrate the simplicity and power of the ideas behind the proposed framework.” (Bernardo M. Villegas, Co-founder, University of Asia and the Pacific, and former member, Constitutional Commission, Metro Manila, Philippines)

“The book is of interest to policy makers, as it is one of the few available resources that has a practical take in clarifying how the energy business interacts within dynamic policy and market environments such as Indonesia. As policy makers, we have to pursue policies that seek to uplift our people's wellbeing. The Coal-Geothermal swap idea that Barcelona and Antonie de Wilde offer could pave the way to meeting Indonesia's energy needs, satisfies our Constitution's Article 33 that ensures our people benefits from our natural resources, while satisfying our environmental targets under COP 21.” (Dr Ir Montty Girianna, Deputy Minister in the Coordinating Ministry for Energy andMining, Government of Indonesia, Jakarta, Indonesia)

“Instructive and timely, the book is a pragmatic and thoughtful read for energy practitioners and policy-makers at a time when uncertainty in the industry is certain.” (Raphael P. M. Lotilla, Independent Director, Trans-Asia Petroleum, and former Secretary of Energy, Government of the Philippines)

“As Philippine Ambassador to the Netherlands from 2002-2009, I had the opportunity to interact with Dr Ricardo Barcelona on energy issues affecting the Philippines. The National Power Corporation of the Philippines has availed of his expertise during Fidel V Ramos’ presidency in formulating a viable and sustainable energy policy for the country.” (Romeo Arguelles, former Philippine Ambassador to the Netherlands, United States) 

“An alternative approach is proposed to hedge energy market and technology uncertainties, and in the process, firms can profit from the opportunities offered by renewables.” (Emilio Lamo Espinosa, Chairman, Elcano Royal Institute, Spain)

“Known to me for the past thirty years, Ricardo is recognized as one of the top rated energy experts. He combines his experiences and strategic insights gained from industry and finance, into his new book - an extremely valuable resource for anyone who wants to be up to date in such a strategic industry.” (Pablo Diaz Megias, Country Head, UBS Group, Spain)

“This book’s approach aims to include issues around price, costs and volume volatilities – very relevant in the light of current volatile energy markets – into the overall cost/benefit calculation when choosing a power generation technology. ‘Traditional’, deterministic approaches are no longer sufficient.  A colleague at Shell, Dr Barcelona’s hands-on experience in various energy markets means that this book is written for practitioners by a practitioner.” (William Sooby, Energy Consultant, United Kingdom, and formerly Shell Energy Europe, The Netherlands)

 “If you want to benefit from innovative strategic insights regarding investing in the energy sector, resulting from a fresh out-of-the-box approach by the authors, then this book does exactly that. The authors not only provide practical methods but also show its applications in real life.” (Gert-Jan Monster, Senior Investment Officer, FMO – The development bank of the Netherlands)

“Dr Ricardo Barcelona’s book is a true practitioners guide for energy finance and a must read for anyone interested in the energy sector.” (Carlos Reyes, Principal, IFC Asset Management Company LLC, Director, United States)

“Repeated leadership failures are masked when business logic is lost when simplistic financial methodologies are used in capital budgeting and investment evaluation. The book shows straightforward practical solutions to counter them, while highlighting opportunity and choice. Quite simply, managers are offered the opportunity to do the right things the right way.” (Paul Collin,former Group Vice President, Human Resources, ABB, Zurich, Switzerland)   

• IESE Business School, University of Navarra, Barcelona, Spain

  Ricardo G. Barcelona

Ricardo G. Barcelona, PhD in Management, King’s College London, United Kingdom, lectures at leading business schools. He served in senior leadership roles at Royal Dutch Shell, Netherlands and London. As investment banker, he was top rated equity analyst and adviser whilst at SBC Warburg and ABN Amro/Rothschild. 

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