How Large Should Railway Solar Be? A Real Options Analysis of Scale Flexibility Under SMP and REC Uncertainty

Railway idle land offers a large and underused space for solar power, yet its economic value has not been evaluated. Revenue depends on the volatile System Marginal Price (SMP) and Renewable Energy Certificate (REC) markets, whose uncertainty cannot be fully captured by static discounted cash flow (DCF) analysis. This study asks whether solar development on Korea’s railway idle land is worthwhile over the long term, and at what scale it should proceed. It applies an integrated DCF and real options analysis (ROA) framework to a proposed 438 MW project on the Honam Line in southern Korea. Price volatility is estimated from monthly SMP and REC data with a geometric Brownian motion model, and the options to expand and to contract are valued on a binomial lattice. The DCF yields a marginal net present value of USD 3.2 million. The expansion option adds USD 172.5 million and is exercised in 67% of states, raising the total project value to USD 175.7 million. Rising panel efficiency and falling capital costs move the project firmly into feasibility. Therefore, scale flexibility turns a marginal project into a strongly positive one, supporting the large-scale deployment of solar on railway idle land.