A Review of the Operations Literature on Real Options in Energy

Real option models maximize the estimated market value of operational assets, exploiting the flexibility that decision makers have in managing these assets. Inspired by the valuation of financial options, their natural domains of application feature high levels of market or operational risk. The existence of finan-cial markets that trade instruments associated with the inputs or outputs of the underlying processes facilitates the use of these models. The energy industry has thus received a substantial amount of atten-tion within the real option and operations (management/research) communities. The extant work lacks a review of the operations literature on energy real options. We present a synthesis of this literature con-sidering review categories that pertain to the phenomena it studies and the tools it uses to conduct its analysis. Further, we outline potential research directions.(c) 2022 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY-NC-ND license ( http://creativecommons.org/licenses/by-nc-nd/4.0/ )