The valuation of geothermal power projects in Indonesia using real options valuation

The purpose of this study is to evaluate and analyze the present value of the geothermal power plant projects in Indonesia using the net present value and real options valuation approach to obtain a better project value that indicates profitable investments. The project value is determined based on Net Present Value (NPV). The Monte Carlo Simulation calculated NPV based on the discount rate, production volume, and operation and maintenance (O&M) cost. The risk of the project is defined with three scenarios to obtain NPV and calculate Expected Net Present Value (ENPV). Real Options Valuation obtained the highest NPV of the geothermal power plant project indicating a higher return for the project that was previously undervalued using the NPV and the ENPV method. Real Options Valuation approach improved the project value by incorporating scenario analysis and strategic options in the valuation process. The optionality framework can be used in the decision-making process to give more robust as well as easier to interpret the result for geothermal power plant project valuation.