Research Project
A Real Options Approach to Renewable and Nuclear Energy Investments in the Philippines
The rapid economic development in the Philippines has brought investments to spread from major cities into provinces. This caused the demand for electricity to dramatically increase from the past decades. As the country’s electricity sector was highly dependent on imported petroleum as the major source of energy for power generation, the country’s energy security has been vulnerable to various oil crises and unstable prices.
To address the increasing energy demands and decreasing dependence on imported oil, the government started its nuclear program in 1973. However, due to numerous protests related to nuclear disasters, the succeeding administrations decided to discontinue the program. Renewable energies remain the most promising alternatives to suffice the country’s energy demand. At present, renewable energy sources account for 32.13% of the country’s power capacity and is targeted to double it by 2030 at 4.6% annual growth rate. However, investment on these alternatives is challenged by very competitive petroleum prices, economic downturns, political instability, natural calamities, and skepticism. It is therefore important to make a study that clearly suggests a strategy whether or not to invest, and when to invest on any alternative energy source.
This study will analyze various energy investment alternatives using the real options approach to investment under fuel price uncertainty. This will pose various scenarios that represent energy switching decision making process based on the theory of irreversible investment. As most studies have explored price uncertainties, this paper’s contribution to the existing literatures are the inclusion of externality, nuclear risk, technological innovation, and the switching option to nuclear or renewables. This will finally aim to recommend various government actions to address environmental, supply chain, and national security with regards to energyor: Prof. Dr. Helmut Karl
