A real options approach to renewable electricity generation in the Philippines

Environmental problems associated with emissions from fossil fuel. along with limited supply. volatile prices. and energy security. prompted developed and developing countries to find more reliable and sustainable sources of energy. Renewable energy (RE) sources. being abundant. inexhaustible. cleaner. and readily available. emerge as a promising alternative energy source. According to International Energy agency (IEA). RE accounted to 13.7% of the world energy generation mix in 2015. With a rapid decline in RE costs. this percentage mix is expected to double by 2040. In the Philippines. the development and optimal use of RE resources is an essential part of the country’s low emission strategy and is vital to addressing climate change. energy security. and access to energy. In 2015. renewable energy accounts to 25% of the country’s total electricity generation mix. only 1% from wind and solar energy. Since the country is highly dependent on imported fossil fuels. sudden changes in the price of fuels in the world market may eventually affect the country’s energy security. Renewable energy serves as a long-term solution by introducing localized RE sources. However. despite the country’s huge potential for RE generation. investments in RE projects are challenged by competitive prices of fossil fuels. more mature technology for fossil fuels. and very high investment cost for renewable energy. These give us the motivation to make a study that analyzes the attractiveness of RE investments to address the country’s concern on energy sufficiency and sustainability.

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