2. Project Evaluation Techniques
To help decision-makers invest in RES technologies, it is essential to have reliable indicators capable of measuring a project’s total performance, comparing it with the feasibility of other alternatives. Several tools are used to measure the feasibility of RES projects. For example, Ramadan et al. 
applied net present value (NPV) combined with an annual Return on Investment (ROI). NPV can also be used as a standalone tool or combined with the Internal Rate of Return (IRR) 
. Carneiro and Ferreira 
also explored the use of NPV associated with IRR and Payback Period (PBP) while Talavera et al. 
applied NPV with IRR and Levelized Cost of Electricity (LCOE).
Although most of the current studies on the feasibility of RES projects are based on the use of more than one indicator, the classic NPV has been the most popular indicator for evaluating investments in general [17,18]
. However, the long-term investment characteristic of RES projects can compromise the reliable application of traditional indicators to measure viability [19,20]
. The NPV represents the total value of the project at the current value, considering a discount rate that reflects the risk at which the investor demands to be remunerated 
. NPV is considered the most theoretically reliable tool from a financial perspective since it measures value creation 
Another indicator widely used in RES projects is the IRR, expressed by the interest rate for which the project’s NPV is zero. When the future cash flows of a project are discounted using the IRR, the present value of cash outflows equals the present value of cash inflows 
. IRR is generally used with the NPV in the evaluation of projects 
. Ref. 
discussed the IRR and argues that joint with NPV, it represents the second measure of the project profitability. It is based on a non-dimensional scale while NPV represents a monetary quantity.
The Payback Period (PBP) is an indicator that aims at expressing the time to recover the investment in a project. The PBP is the number of years or months necessary for the gross value of the inputs and outputs to be equal 
. PBP can be used with or without considering the time value of money. When this is taken into account, the method is called the Discounted Payback Period, otherwise is frequently called Simple Payback Period. Despite its easy understanding and usability, PBP disregards existing cash flows after the investment is recovered, and is a very limited tool for decision making 
Another approach to measuring the feasibility of RES projects is based on cost analysis. In this approach, it is possible to identify the concepts of Cost of Electricity, also called Cost of Energy (COE) 
or Levelized COE (LCOE) 
, defined as the average cost ($) per kWh of energy produced by the system 
. Aussel et al. 
claimed that the LCOE indicator is widely used for energy projects, and Siddaiah and Saini 
highlighted LCOE as the preferred indicator for minimizing the lifecycle cost of a project. Although several studies are adopting the present value view of project costs, 
demonstrated that LCOE represents not a discounted metric but rather an undiscounted metric. Moreover, the author argues that the present value approach of costs excessively penalizes projects with a longer life cycle. However, the LCOE remains a fundamental metric widely disseminated among the energy industry, academics, and organizations (see, for example, [32,33,34,35]
The ROI, defined as the annual cost saving over the invested capital 
or as the annual average net profit over the invested capital 
, is also a common criterion used for analyzing the economic viability of RES projects 
. Although ROI is strongly linked to NPV in investment valuation 
, some studies use these two indicators as complementary metrics 
. Other papers highlight that the ROI parameters may not incorporate the time value of money 
, and, for this reason, the metric could be used as an independent financial parameter. A variation of ROI is the Energy ROI (EROI), defined as the proportion of the plant’s usable energy over the energy invested in the plant 
, which will not be considered in this paper.
Given the need to value the managerial flexibility of projects in light of a future of uncertainty and change, some tools can be explored. Real options analysis (ROA), which seeks to price the future uncertainty of these projects, can be used as an indicator that complements traditional metrics based on a deterministic cash flow 
. The real options theory has been applied with increasing frequency to the evaluation of RES projects [40,41,42]
. Decisions are assumed to be fixed in the traditional analysis of investments through discounted cash flow, not allowing managers to expand or retract investments beyond the initial project estimate 
. The term real options is used to express the options that are embedded in investment opportunities, such as suspending, postponing, or abandoning the investment, and reducing or expanding the scale of operations 
. ROA can be considered a complementary tool in the analysis of project feasibility. Ref. 
compared the traditional NPV method to the expanded NPV method that considers the flexibilities of a specific project. The authors concluded, as expected, that the value of NPV using ROA is greater than the traditional calculation since a real option can give flexibility and then add value to the project.
summarizes these project evaluation techniques including the simplified equations for their calculation and some of the main related concepts/ideas. Although different categorizations of the financial evaluation methods have been proposed in the literature [9,29,44,45]
, in this paper those methods are grouped in four categories, for the qualitative analysis purpose: (i) Traditional Project Evaluation Methods (TPEM), expressed by metrics that evaluate the viability of projects by discounting cash flows: NPV, IRR and Payback period; (ii) Cost analysis approach, represented by the Levelized Cost of Energy (LCOE); (iii) Return on Investment (ROI); and (iv) Real Options Analysis (ROA) that takes into account in the decision-making process the managerial flexibility associated with the investment decision.
Project Valuation Techniques.
|Traditional Project Evaluation Methods (TPEM)
||Net Present Value (NPV)
||CF = Cash Flow in the year |