Energy recovery from the organic fraction of municipal solid waste: technical, economical and financial assessment of a facility using the Real Options Theory

In European Countries an high percentage of food purchased is thrown away, thus increasing the organic fraction of municipal solid waste (OFMSW). Anaerobic digestion (AD) can reduce the volume of OFMSW going to landfill, producing, at the same time, biogas and compost, all at a profit. In this paper the authors present the results of a study aimed at assessing the technical, economic and financial feasibility of different plant configurations of an AD facility for compost and biogas production, characterized by a different degree of flexibility. A methodology based on the Real Options Theory (ROT) and the Monte Carlo simulation is used to assess the value of some “flexible” technologies that allow management to react actively to uncertainty. The proposed methodology considers investments as a series of opportunities, or options, which can be exploited or abandoned when uncertainty about future scenarios is gradually resolved. This allows analysts to take into account, at the feasibility study stage, flexibility of these plants as well as both probabilistic and deterministic variables affecting these investment projects. The model has been applied to a case study concerning an Italian Municipality. Results obtained show the capability of the proposed approach to evaluate the effect of different degrees of production systems flexibility on financial and economic results of an investment project.