Real Options Analysis of Renewable Energy Investment Scenarios in the Philippines

Abstract

With the continuously rising energy demand and much dependence on imported fossil fuels, the Philippines is developing more sustainable sources of energy. Renewable energy seems to be a better alternative solution to meet the country’s energy supply and security concerns. Despite its huge potential, investment in renewable energy sources is challenged with competitive prices of fossil fuels, high start-up cost for renewables, and lower feed-in-tariff rates for renewables. To address these problems, this study aims to analyze energy investment scenarios in the Philippines using real options approach. This compares the attractiveness of investing in renewable energy over continue using coal for electricity generation under uncertainties in coal prices, investments cost, electricity prices, growth of investment in renewables, and imposing carbon tax for using fossil fuels.