Land-use change and solar energy production: A real option approach

Ardjan Gazheli

Research output: Contribution to journalArticleResearchpeer-review

20 Citations (Scopus)


© Emerald Group Publishing Limited. Purpose – In this paper, a real option model is developed to examine the critical factors affecting the decision to lease agricultural land to a company installing a PV power plant. Subsidies introduced by governments for the production of renewable energies have increased the investments in this sector. Since ground-based solar cells need land for energy production, then potential trade-off with agriculture in terms of land exists. The paper aims to discuss these issues. Design/methodology/approach – The paper uses the real option approach in order to take into account for uncertainty and irreversibility of the farmer’s decision. Findings – By applying the model to the province of Bologna (Italy), the paper illustrates the possible land-use change scenarios in this area. The paper concludes by discussing the importance of PV energy production as a source of income for farmers and its implications from a social perspective. Originality/value – The research is applied to the province of Bologna (Italy) where investments in ground-based solar cells are becoming quite common. The originality lies in the fact of considering the investment as irreversible, since it is a 20-year commitment from the farmers. The paper also takes into account the uncertainty in agricultural commodities’ prices.
Original languageEnglish
Pages (from-to)507-525
JournalAgricultural Finance Review
Issue number3
Publication statusPublished - 1 Jan 2013


  • Land allocation
  • Real options
  • Renewable energy
  • Solar farm
  • Uncertainty


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