Conclusions
We evaluate investment environments and decisionmaking process for substituting diesel power plant with RE for electricity generation in the Philippines. Using real options approach under uncertainty in diesel prices, we identify the option values, trigger prices of diesel, and value of waiting to invest in RE. We analyze the sensitivity of investment decisions with respect to various electricity prices and addition of externality tax for using diesel.
ROA highlights the flexibility in the timing of making investment decisions. Our analyses conclude that for a developing country that is highly dependent on imported fuel, shifting to RE is a better option than continue using imported diesel. Policies should aim at supporting investment in more sustainable sources of energy by imposing externality for using fossil-based fuel or decreasing the price of electricity. This may negatively affect the power producers but encourage them to shift from diesel to renewable energy.
We summarized a unique approach to energy investment by replacing diesel with RE for electricity generation. We believe that the ROA framework introduced in this research is a good benchmark for further application. First, ROA may take account of environmental and social costs. This may include the cost of deforestation for solar farm, wildlife and habitat loss, air and water pollution, damage to public health, and loss of jobs. Finally, analyzing investment decisions with several RE resources includes dynamic optimization with different scenarios of generation mix from various RE sources. We are optimistic that this research becomes one-step forward for further analysis of investment in more sustainable sources of energy.
