Real Options Analysis of Renewable Energy Investment Scenarios in the Philippines

Casper Boongaling Agaton


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.    


real options approach; investment under uncertainty; dynamic optimization; renewable energy

Full Text:



EIA. (2017b). International energy outlook 2017 table: World total energy consumption by region and fuel. Energy Information Administration. Available: [20 Aug., 2017].

FS-UNEP.( 2017). “Global trends in renewable energy investment 2017.” Frankfurt School – United Nations Environment Program (FS-UNEP) for Climate Change and Sustainable Energy Finance. Available: [20 Aug., 2017].

BNEF. “New energy outlook 2016: Powering a Changing World.” Bloomberg New Energy Finance. Available: [20 Aug., 2017].

DOE, 2016. 2015 Philippine Power Statistics. Department of Energy, Philippines. Available:

Aug., 2017].

DOE. (2012). Philippine Energy Plan 2012-2030. Department of Energy, Philippines. Available: [16 Aug., 2017].

IRENA. (2017). Renewables Readiness Assessment: The Philippines. International Renewable Energy Agency. Available: [04 Nov., 2017].

L. Santos, I. Soares, C. Mendes and P. Ferreira. „Real options versus traditional methods to assess renewable energy projects.” Renewable Energy, vol. 68, pp. 588-594, 2014.

M.A. Brach. Real options in practice New Jersey: John Wiley & Sons, Inc. Hoboken, 2003.

G. Kumbaroglu, R. Madlener and M. Demirel. . “A real options evaluation model for the diffusion prospects of new renewable power generation technologies.” Energy Econ, vol, 30, pp. 18821908, 2008

M.M. Zhang, P. Zhou and D.Q. Zhou. “A real options model for renewable energy investment with application to solar photovoltaic power generation in China.” Energy Economics, vol. 59, pp. 213-226, 2016.

K. Kim, H. Park and K. Kim. “Real options analysis for renewable energy investment decisions in developing countries.” Renewable and Sustainable Energy Reviews, vol. 75, pp. 918-926, 2017

L. Kitzing, N. Juul, N. Drud and T.K. Boomsma. “A real options approach to analyse wind energy investments under different support schemes.” Applied Energy, vol. 188, pp. 83-96, 2017.

L. Tian, et. al.. “The valuation of photovoltaic power generation under carbon market linkage based on real options.” Applied Energy, vol. 201, pp. 354-362, 2016.

I. Ritzenhofen and S. Spinler. „Optimal design of feed-in tariffs to stimulate renewable energy investments under regulatory uncertainty — A real options analysis.” Energy Economics, vol. 53, pp. 76-89, 2016.

A.K. Dixit and R.S. Pindyck. Investment under Uncertainty. New Jersey: Princeton University Press, 1994.

O. Tietjen, M. Pahle and S. Fuss. “Investment risks in power generation: A comparison of fossil fuel and renewable energy dominated markets.” Energy Economics, vol. 58, pp.174-185, 2016.

X. Wang and L. Du . „Study on carbon capture and storage (CCS) investment decision-making based on real options for China’s coal-fired power plants.” Journal of Cleaner Production, vol. 112 (5), pp. 4123-4131, 2016.

H. Xian, G. Colson, B. Mei and M.E. Wetzstein. “Co-firing coal with wood pellets for US electricity generation: A real options analysis.” Energy Policy, vol. 81, pp.106-116, 2015.

N. Detert and K. Kotani. “A real options approach to energy investments in Mongolia.” Energy Policy, vol. 56, pp. 136-150, 2013.

M. Insley. “A real options approach to the valuation of a forestry investment.” Journal of Environmental Economics and Management, vol. 44 (3), pp. 471-492, 2002.

G.A. Davis and R.D. Cairns. “Good timing: The economics of optimal stopping.” Journal of Economic Dynamics and Control, vol. 36(2), pp.255-265, 2012.

EIA. Levelized Cost and Levelized Avoided Cost of New Generation Resources in the Annual Energy Outlook 2017. Energy Information Administration. Available: [16 Aug., 2017].

H. Dai, X. Xie, Y. Xie, J. Liu and T. Masui. “Green growth: The economic impacts of large-scale renewable energy development in China.” Applied Energy, vol. 162, pp. 435-449, 2016.

Y. Qui and L.D. Anadon. “The price of wind power in China during its expansion: Technology adoption, learning-by-doing, economies of scale, and manufacturing localization.” Energy Economics, vol. 34(3), pp.772-785, 2012.

M. Jungunger, A. Faaij and W.C.Turkenburg.„Global experience curves for wind farms.” Energy Policy, vol. 33(2), pp. 113-150, 2005.

L. Fernandez.(2015). “Power prices: Where we are and how do we reduce the bill.” Philippines’ Department of Trade and Industry (DTI). Available: [20 Aug., 2017].

IEC. (2016). Regional/Global Comparison of Retail Electricity Tariffs. International Energy Consultants. Available: [20 Aug., 2017].

J.C. Ketterer. “The impact of wind power generation on the electricity price in Germany.” Energy Economics, vol. 44, pp. 270-280, 2014.

T. Jonsson, P. Pinson and H. Madsen. “On the market impact of wind energy forecasts.” Energy Economics, vol. 32(2), pp. 313-320, 2010.

L. Gelabert, X. Labandeira and P. Linares. “An expost analysis of the effect of renewables and cogeneration on Spanish electricity prices.” Energy Economics, vol. 33(1), pp. S59-S65, 2011.

REN21. (2016). “Renewables 2016 global status report.” Renewable Energy Network Policy for the 21st Century. Available:

_lowres.pdf [16 Aug., 2017].

H. Meller and J. Marquardt. (2013). “Renewable energy in the Philippines: Costly or competitive? Facts and explanations on the price of renewable energies for electricity production.” Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. Available: [20 Aug., 2017].

D. Burtraw and A. Krupnick.(2012). “The true cost of electric power: an inventory of methodologies to support future decision-making in comparing the cost and competitiveness of electricity generation technologies.” Renewable Energy Network Policy for the 21st Century (REN21). Available: [18 Aug., 2017].

H. Cabalu, P. Koshy, E. Corong, U. E. Rodriguez and B. A. Endrigad.(2015). “Modelling the impact of energy policies on the Philippine economy: Carbon tax, energy efficiency, and changes in the energy mix.” Economic Analysis and Policy vol, 48, pp. 222-237.



  • There are currently no refbacks.

Copyright (c) 2017 Casper Boongaling Agaton

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Renewable Energy and Sustainable Development

E-ISSN: 2356-8569

P-ISSN: 2356-8518


Published by:

Academy Publishing Center (APC)

Arab Academy for Science, Technology and Maritime Transport (AASTMT)