Two-phase integrated investment evaluation of clean energy: an empirical analysis of “Photovoltaic+Rice-Wheat” project in China

Purpose This paper primarily aims to (1) Develop a two-phase investment assessment framework based on the RO method for the PVRW project. (2) Utilize least squares Monte Carlo (LSMC) to simulate how key factors affect the investment value and the best time to invest in the PVRW project. (3) Conduct sensitivity analysis to determine which factors influence the choice of the whole project investment. Design/methodology/approach A two-phase investment evaluation framework for PVRW projects is constructed using RO theory. Compared with the traditional NPV model, this method can accurately evaluate the project value under uncertain conditions and determine the optimal investment time. Incorporating the two-phase uncertainties of PVRW projects and three cooperation investment modes, the optimal investment strategies are provided for investors. Findings In the first phase of the PVRW project, while immediate investment under all three operation investment modes can yield returns, it is not the optimal timing. Investors should opt for the cooperative operation mode and delay investment by nine years to achieve the optimal return of 614 m CNY, rather than choosing the independent or lease operation modes. In the second phase of the PVRW project, investors are suggested to transfer to the lease operation mode to achieve the optimal investment value of 1.23 bn CNY for the entire project. Sensitivity analysis results indicate that in both phases of the project, increases in the unit’s initial investment cost and the unit’s O&M cost of the PV system lead to a decrease in the project’s investment value. Conversely, the increase in annual power generation hours enhances the project’s investment value and advances the optimal investment timing. The higher volatility in CO 2 prices is shown to slightly increase the project’s value. Agricultural production costs play a significant role in determining investment strategies. When these costs decrease by approximately 32.70%, the independent operation mode is recommended. Changes in agricultural product prices can also lead to a shift in the first phase investment strategy. When agricultural product prices decrease by approximately 7%, investors should transition from Mode 2 to Mode 3 during the first phase. Research limitations/implications Due to the long lifecycle of agrivoltaics projects and the variability of meteorological conditions, integrating annual power generation hours into the proposed framework will further promote the effectiveness and accuracy of project investment decisions. Besides, when the operating model is switched from Phase 1 to Phase 2, the conversion costs are not taken into account in the operating costs of the Phase 2 project. Practical implications For the farmers: Given the combined effects of uncertainties, a phased investment strategy that incorporates both leasing and cooperative operation models could be highly advantageous. Additionally, increasing agricultural revenue can strengthen investors’ confidence in long-term project investment in an independent operation mode. Therefore, investors should focus on the potential for enhancing crop yields through technological innovations, such as efficient irrigation systems and crop variety improvements. These measures can effectively reduce risk and ultimately improve the overall investment outcome. Social implications For policymakers: Local governments should prioritize increasing agricultural subsidies or providing incentives to lower production costs. Reducing these costs can indirectly enhance the profitability of agrivoltaics projects and make the independent operation model more attractive to investors. This approach would support sustainable agricultural development while encouraging greater private investment in renewable energy. Originality/value This study has proposed a four-stage integrated approach combined with cost-benefit analysis, uncertainty measurement, two-phase real options (TPRO) and sensitive analysis to evaluate the investment of the PVRW project. Based on the case study of the PVRW project in Jiangsu Province, the proposed integrated approach is shown to assist investors in choosing the optimal investment mode for the PVRW project.