Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

In this study, a Feed-in Tariff pricing model is developed using real option and applied to photovoltaic power generation. The Black-Scholes formula is conversed with real option because the structure of FIT clearing condition is similar to European put option. This pricing methodology is possibly new approach for FIT pricing under electricity price risk, but levelized generation cost method do not consider this premium from the option structure. In the result of this study, FIT ascend to certain electricity price and descend above this price. This is because the payoff from FIT is reduced as electricity price rise and opportunity cost, difference between real option value and benefit is reduced. So photovoltaic electricity producer possibly demand rise of FIT even though electricity price ascend. Consequently, government have to estimate FIT after understanding of this characteristics of real option and FIT under price risk.