Real Option Analysis for Renewable Energy: A Systematic Review

Jethro Olorunfemi Idowu; Ini Adinya

doi:doi:10.11648/j.ijamtp.20261201.11

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Real Option Analysis for Renewable Energy: A Systematic Review

Jethro Olorunfemi Idowu^*, Ini Adinya

Published in International Journal of Applied Mathematics and Theoretical Physics (Volume 12, Issue 1)

Received: 5 November 2025 Accepted: 17 November 2025 Published: 15 January 2026

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Abstract

Renewable energy projects suffer from deep uncertainties associated with volatile market conditions, unstable policy regimes and changing technological landscapes. Traditional valuation tools like Net Present Value (NPV) are increasingly being accepted as insufficient to capture the managerial flexibility needed to deal with this complex environment. As a result, a powerful alternative investment framework, Real Options Analysis (ROA), has been proposed, in which the possibility of strategic adaptability under uncertainty is valued explicitly for renewable energy investment. This paper reports a systematic review between 2000-2025 of research works on ROA application in the renewable energy sector. Using the Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) framework, 288 peer-reviewed studies were identified from twelve major academic databases (Scopus, IEEE Xplore, and Wiley Online Library). Each study was reviewed in terms of key dimensions: renewable technology type, real option category, modelling technique, dominant sources of uncertainty and geographical focus. The results show the dominance of the decision to defer (timing option) as the most important strategic flexibility for all technologies, emphasising the key problem of optimal investment timing. Methodologically, the field has transitioned from basic analytical models to complex simulation-based models, with binomial lattices and Monte Carlo models dominating the scene, followed by a significant move to hybrid, fuzzy, and AI-enhanced models after 2015. The analysis also reveals clear regional patterns in the types of uncertainties modelled with European studies focusing on market and policy risks, Asian studies on resource availability and work in the Americas taking into account technical risks. However, a serious underrepresentation in Africa, especially in Nigeria, is also revealed, which constitutes a major gap in the research. This review concludes that while the methodological foundations of ROA are well established, its practical application remains limited, particularly outside developed countries. Expanding the use of ROA could better support the global energy transition, but achieving this requires addressing barriers such as computational complexity, limited modeling expertise, and regulatory reliance on deterministic valuation methods. Greater integration of these flexible decision-making tools into policy design and project appraisal, especially in high-risk and underrepresented regions, is therefore necessary.

Published in	International Journal of Applied Mathematics and Theoretical Physics (Volume 12, Issue 1)
DOI	10.11648/j.ijamtp.20261201.11
Page(s)	1-27
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2026. Published by Science Publishing Group

Keywords

Real Options Analysis, Renewable Energy, Investment Flexibility, Systematic Review, Uncertainty Modeling, PRISMA, Energy Policy

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Idowu, J. O., Adinya, I. (2026). Real Option Analysis for Renewable Energy: A Systematic Review. International Journal of Applied Mathematics and Theoretical Physics, 12(1), 1-27. https://doi.org/10.11648/j.ijamtp.20261201.11

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Idowu, J. O.; Adinya, I. Real Option Analysis for Renewable Energy: A Systematic Review. Int. J. Appl. Math. Theor. Phys. 2026, 12(1), 1-27. doi: 10.11648/j.ijamtp.20261201.11

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Idowu JO, Adinya I. Real Option Analysis for Renewable Energy: A Systematic Review. Int J Appl Math Theor Phys. 2026;12(1):1-27. doi: 10.11648/j.ijamtp.20261201.11

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@article{10.11648/j.ijamtp.20261201.11,
  author = {Jethro Olorunfemi Idowu and Ini Adinya},
  title = {Real Option Analysis for Renewable Energy: A Systematic Review
},
  journal = {International Journal of Applied Mathematics and Theoretical Physics},
  volume = {12},
  number = {1},
  pages = {1-27},
  doi = {10.11648/j.ijamtp.20261201.11},
  url = {https://doi.org/10.11648/j.ijamtp.20261201.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijamtp.20261201.11},
  abstract = {Renewable energy projects suffer from deep uncertainties associated with volatile market conditions, unstable policy regimes and changing technological landscapes. Traditional valuation tools like Net Present Value (NPV) are increasingly being accepted as insufficient to capture the managerial flexibility needed to deal with this complex environment. As a result, a powerful alternative investment framework, Real Options Analysis (ROA), has been proposed, in which the possibility of strategic adaptability under uncertainty is valued explicitly for renewable energy investment. This paper reports a systematic review between 2000-2025 of research works on ROA application in the renewable energy sector. Using the Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) framework, 288 peer-reviewed studies were identified from twelve major academic databases (Scopus, IEEE Xplore, and Wiley Online Library). Each study was reviewed in terms of key dimensions: renewable technology type, real option category, modelling technique, dominant sources of uncertainty and geographical focus. The results show the dominance of the decision to defer (timing option) as the most important strategic flexibility for all technologies, emphasising the key problem of optimal investment timing. Methodologically, the field has transitioned from basic analytical models to complex simulation-based models, with binomial lattices and Monte Carlo models dominating the scene, followed by a significant move to hybrid, fuzzy, and AI-enhanced models after 2015. The analysis also reveals clear regional patterns in the types of uncertainties modelled with European studies focusing on market and policy risks, Asian studies on resource availability and work in the Americas taking into account technical risks. However, a serious underrepresentation in Africa, especially in Nigeria, is also revealed, which constitutes a major gap in the research. This review concludes that while the methodological foundations of ROA are well established, its practical application remains limited, particularly outside developed countries. Expanding the use of ROA could better support the global energy transition, but achieving this requires addressing barriers such as computational complexity, limited modeling expertise, and regulatory reliance on deterministic valuation methods. Greater integration of these flexible decision-making tools into policy design and project appraisal, especially in high-risk and underrepresented regions, is therefore necessary.
},
 year = {2026}
}

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TY  - JOUR
T1  - Real Option Analysis for Renewable Energy: A Systematic Review

AU  - Jethro Olorunfemi Idowu
AU  - Ini Adinya
Y1  - 2026/01/15
PY  - 2026
N1  - https://doi.org/10.11648/j.ijamtp.20261201.11
DO  - 10.11648/j.ijamtp.20261201.11
T2  - International Journal of Applied Mathematics and Theoretical Physics
JF  - International Journal of Applied Mathematics and Theoretical Physics
JO  - International Journal of Applied Mathematics and Theoretical Physics
SP  - 1
EP  - 27
PB  - Science Publishing Group
SN  - 2575-5927
UR  - https://doi.org/10.11648/j.ijamtp.20261201.11
AB  - Renewable energy projects suffer from deep uncertainties associated with volatile market conditions, unstable policy regimes and changing technological landscapes. Traditional valuation tools like Net Present Value (NPV) are increasingly being accepted as insufficient to capture the managerial flexibility needed to deal with this complex environment. As a result, a powerful alternative investment framework, Real Options Analysis (ROA), has been proposed, in which the possibility of strategic adaptability under uncertainty is valued explicitly for renewable energy investment. This paper reports a systematic review between 2000-2025 of research works on ROA application in the renewable energy sector. Using the Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) framework, 288 peer-reviewed studies were identified from twelve major academic databases (Scopus, IEEE Xplore, and Wiley Online Library). Each study was reviewed in terms of key dimensions: renewable technology type, real option category, modelling technique, dominant sources of uncertainty and geographical focus. The results show the dominance of the decision to defer (timing option) as the most important strategic flexibility for all technologies, emphasising the key problem of optimal investment timing. Methodologically, the field has transitioned from basic analytical models to complex simulation-based models, with binomial lattices and Monte Carlo models dominating the scene, followed by a significant move to hybrid, fuzzy, and AI-enhanced models after 2015. The analysis also reveals clear regional patterns in the types of uncertainties modelled with European studies focusing on market and policy risks, Asian studies on resource availability and work in the Americas taking into account technical risks. However, a serious underrepresentation in Africa, especially in Nigeria, is also revealed, which constitutes a major gap in the research. This review concludes that while the methodological foundations of ROA are well established, its practical application remains limited, particularly outside developed countries. Expanding the use of ROA could better support the global energy transition, but achieving this requires addressing barriers such as computational complexity, limited modeling expertise, and regulatory reliance on deterministic valuation methods. Greater integration of these flexible decision-making tools into policy design and project appraisal, especially in high-risk and underrepresented regions, is therefore necessary.

VL  - 12
IS  - 1
ER  -

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Jethro Olorunfemi Idowu

Department of Mathematics, University of Ibadan, Ibadan, Nigeria

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Ini Adinya

Department of Mathematics, University of Ibadan, Ibadan, Nigeria

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http://orcid.org/0000-0003-0168-8305

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Idowu, J. O., Adinya, I. (2026). Real Option Analysis for Renewable Energy: A Systematic Review. International Journal of Applied Mathematics and Theoretical Physics, 12(1), 1-27. https://doi.org/10.11648/j.ijamtp.20261201.11

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ACS Style

Idowu, J. O.; Adinya, I. Real Option Analysis for Renewable Energy: A Systematic Review. Int. J. Appl. Math. Theor. Phys. 2026, 12(1), 1-27. doi: 10.11648/j.ijamtp.20261201.11

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AMA Style

Idowu JO, Adinya I. Real Option Analysis for Renewable Energy: A Systematic Review. Int J Appl Math Theor Phys. 2026;12(1):1-27. doi: 10.11648/j.ijamtp.20261201.11

Copy | Download

@article{10.11648/j.ijamtp.20261201.11,
  author = {Jethro Olorunfemi Idowu and Ini Adinya},
  title = {Real Option Analysis for Renewable Energy: A Systematic Review
},
  journal = {International Journal of Applied Mathematics and Theoretical Physics},
  volume = {12},
  number = {1},
  pages = {1-27},
  doi = {10.11648/j.ijamtp.20261201.11},
  url = {https://doi.org/10.11648/j.ijamtp.20261201.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijamtp.20261201.11},
  abstract = {Renewable energy projects suffer from deep uncertainties associated with volatile market conditions, unstable policy regimes and changing technological landscapes. Traditional valuation tools like Net Present Value (NPV) are increasingly being accepted as insufficient to capture the managerial flexibility needed to deal with this complex environment. As a result, a powerful alternative investment framework, Real Options Analysis (ROA), has been proposed, in which the possibility of strategic adaptability under uncertainty is valued explicitly for renewable energy investment. This paper reports a systematic review between 2000-2025 of research works on ROA application in the renewable energy sector. Using the Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) framework, 288 peer-reviewed studies were identified from twelve major academic databases (Scopus, IEEE Xplore, and Wiley Online Library). Each study was reviewed in terms of key dimensions: renewable technology type, real option category, modelling technique, dominant sources of uncertainty and geographical focus. The results show the dominance of the decision to defer (timing option) as the most important strategic flexibility for all technologies, emphasising the key problem of optimal investment timing. Methodologically, the field has transitioned from basic analytical models to complex simulation-based models, with binomial lattices and Monte Carlo models dominating the scene, followed by a significant move to hybrid, fuzzy, and AI-enhanced models after 2015. The analysis also reveals clear regional patterns in the types of uncertainties modelled with European studies focusing on market and policy risks, Asian studies on resource availability and work in the Americas taking into account technical risks. However, a serious underrepresentation in Africa, especially in Nigeria, is also revealed, which constitutes a major gap in the research. This review concludes that while the methodological foundations of ROA are well established, its practical application remains limited, particularly outside developed countries. Expanding the use of ROA could better support the global energy transition, but achieving this requires addressing barriers such as computational complexity, limited modeling expertise, and regulatory reliance on deterministic valuation methods. Greater integration of these flexible decision-making tools into policy design and project appraisal, especially in high-risk and underrepresented regions, is therefore necessary.
},
 year = {2026}
}

Copy | Download

TY  - JOUR
T1  - Real Option Analysis for Renewable Energy: A Systematic Review

AU  - Jethro Olorunfemi Idowu
AU  - Ini Adinya
Y1  - 2026/01/15
PY  - 2026
N1  - https://doi.org/10.11648/j.ijamtp.20261201.11
DO  - 10.11648/j.ijamtp.20261201.11
T2  - International Journal of Applied Mathematics and Theoretical Physics
JF  - International Journal of Applied Mathematics and Theoretical Physics
JO  - International Journal of Applied Mathematics and Theoretical Physics
SP  - 1
EP  - 27
PB  - Science Publishing Group
SN  - 2575-5927
UR  - https://doi.org/10.11648/j.ijamtp.20261201.11
AB  - Renewable energy projects suffer from deep uncertainties associated with volatile market conditions, unstable policy regimes and changing technological landscapes. Traditional valuation tools like Net Present Value (NPV) are increasingly being accepted as insufficient to capture the managerial flexibility needed to deal with this complex environment. As a result, a powerful alternative investment framework, Real Options Analysis (ROA), has been proposed, in which the possibility of strategic adaptability under uncertainty is valued explicitly for renewable energy investment. This paper reports a systematic review between 2000-2025 of research works on ROA application in the renewable energy sector. Using the Preferred Reporting Items for Systematic Reviews and Meta-Analysis (PRISMA) framework, 288 peer-reviewed studies were identified from twelve major academic databases (Scopus, IEEE Xplore, and Wiley Online Library). Each study was reviewed in terms of key dimensions: renewable technology type, real option category, modelling technique, dominant sources of uncertainty and geographical focus. The results show the dominance of the decision to defer (timing option) as the most important strategic flexibility for all technologies, emphasising the key problem of optimal investment timing. Methodologically, the field has transitioned from basic analytical models to complex simulation-based models, with binomial lattices and Monte Carlo models dominating the scene, followed by a significant move to hybrid, fuzzy, and AI-enhanced models after 2015. The analysis also reveals clear regional patterns in the types of uncertainties modelled with European studies focusing on market and policy risks, Asian studies on resource availability and work in the Americas taking into account technical risks. However, a serious underrepresentation in Africa, especially in Nigeria, is also revealed, which constitutes a major gap in the research. This review concludes that while the methodological foundations of ROA are well established, its practical application remains limited, particularly outside developed countries. Expanding the use of ROA could better support the global energy transition, but achieving this requires addressing barriers such as computational complexity, limited modeling expertise, and regulatory reliance on deterministic valuation methods. Greater integration of these flexible decision-making tools into policy design and project appraisal, especially in high-risk and underrepresented regions, is therefore necessary.

VL  - 12
IS  - 1
ER  -

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