Real option approach to EV charging infrastructure in Finland: Investment decision-making under uncertainty

Abstract

Today the transport sector contributes the majority of greenhouse gas emissions that stimulates the global community to support the rapid adoption of Electric Vehicles (EV). The development of the charging infrastructure is identified as one of the driving forces of the EV adoption that, however, requires significant initial investments and is characterized with uncertainty and irreversibility. Finland introduced ambitious long-term targets on the EV adoption, therefore the thesis examines the charging infrastructure in Finland as an example of an investment project under uncertainty. The aim of the study is to elaborate on how uncertainty affects investment decision-making and how policy regulations reflect uncertainty and support investment decision-making. To cope with uncertainty, the fuzzy pay-off method as a real option valuation approach is applied on the project in this study and considers future managerial flexibility in investment decision-making. In additions, this study considers a growth option for the project and based on that, suggests the step-by-step decision-making. The findings of the thesis have significant theoretical and practical implications for the research in infrastructure investments as well as for the investment decision-making under uncertainty. The two-fold structure of the findings allows decision and policy makers use the results as a basis or a model for practical decision-making. In overall, the thesis is considered as an initial step for the investigation of the charging infrastructure in Finland as a real option or an opportunity for follow-on investments with the use of the fuzzy logic and the fuzzy pay-off method.