Abstract
This paper proposes a real options approach to assess renewable energy investments in the Philippines.
The main goal is to evaluate the comparative attractiveness of either investing on various renewable energy sources or continue importing coal for electricity generation by considering the uncertainty in coal prices. This paper uses the real options approach to empirically evaluate the investment value and optimal timing of switching technologies from coal to renewable. A sensitivity analysis is conducted to investigate the dynamics of investment value and optimal timing under the changes in uncertainty of coal price. The results find that investing in renewable energy is a better option than continue importing coal for electricity generation. Among the available renewable energy sources in the Philippines, geothermal is the most attractive to invest to, followed by wind, hydropower, and solar. The results identify that earlier shifting to renewable energy decreases the possible welfare losses from waiting to invest. This suggests that the Philippine government should boost its programs to reduce coal imports and invest on renewable energies earlier, especially with the current trend of volatile coal prices.
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Agaton, C. (2018). To Import Coal or Invest in Renewables? A Real Options Approach to Energy Investments in the Philippines. In: Sayigh, A. (eds) Transition Towards 100% Renewable Energy. Innovative Renewable Energy. Springer, Cham. https://doi.org/10.1007/978-3-319-69844-1_1
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DOI: https://doi.org/10.1007/978-3-319-69844-1_1
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