Evaluating renewable energy investment flexibility under policy transition: A real options approach to YEKDEM reform in Türkiye

This study examines the impact of the transition of the Renewable Energy Resources Support Mechanism (YEKDEM) from a foreign currency-based to a Turkish lira (TRY)-based Feed-in Tariff (FiT) system on the decision-making processes of Wind Power Plants (WPPs) using a real options approach. To assess investment timing and capacity flexibility under uncertainty, Net Present Value (NPV) and option values are analyzed comparatively using Black–Scholes and Binomial models based on financial and operational parameters for 2021 and 2025. The findings indicate that under low volatility conditions in 2021, postponing investment is rational, whereas the higher uncertainty associated with the TRY-based FiT structure in 2025 shortens optimal deferral periods and accelerates investment timing. In addition, expansion option analysis shows that a capacity increase in the early years of operation maximizes option value, highlighting the importance of staged investment strategies. A key contribution of the study is the comparison of alternative volatility measures. The results reveal that electricity price-based volatility is significantly higher than project-based volatility, and that this difference critically affects both optimal timing decisions and model outcomes. While lower volatility leads to convergence between Black–Scholes and Binomial results, higher volatility increases divergence, emphasizing the importance of uncertainty specification in real option valuation. Overall, the findings demonstrate that the TRY-based FiT system increases the value of flexibility in investment decisions under uncertainty. The study contributes to the literature by showing that real options modeling serves not only as a risk analysis tool but also as a decision-support framework for policy design and strategic investment planning. Furthermore, consistent with the Paris Climate Agreement and the United Nations Sustainable Development Goals (SDGs 7, 9, and 13), the results highlight the role of flexible investment strategies in supporting low-carbon energy transitions.