Coal, Renewable, or Nuclear? A Real Options Approach to Energy Investments in the Philippines

Agaton, Casper (2017): Coal, Renewable, or Nuclear? A Real Options Approach to Energy Investments in the Philippines. Published in: International Journal of Sustainable Energy and Environmental Research , Vol. 6, No. 2 (18 December 2017): pp. 50-62.

Abstract

The Philippines is making a significant step to become energy independent by developing more sustainable sources of energy. The country sees investments in renewable energy and nuclear energy as promising alternatives to address the country’s problem in energy security. This paper evaluates the comparative attractiveness of either investing in alternative energy sources or continuing the use of coal for electricity generation in the Philippines. Applying the real options approach under coal price uncertainty, this study analyzes investment values and optimal timing of switching technologies from coal to renewable or nuclear energy. It also examines how negative externality and the risk of nuclear accident affect investment decisions. Results identify possible welfare losses from waiting or delaying investing in alternative energy. Negative externality favors investment in nuclear energy over coal, whereas the risk of nuclear accident favors investment in renewable energy.

• Item Type: MPRA Paper
• Language: English
• Keywords: renewable energy, nuclear energy, nuclear accident, coal prices, dynamic optimization, investment under uncertainty
• Subjects: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C61 - Optimization Techniques ; Programming Models ; Dynamic Analysis; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q41 - Demand and Supply ; Prices; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q42 - Alternative Energy Sources; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q47 - Energy Forecasting; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q51 - Valuation of Environmental Effects; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q53 - Air Pollution ; Water Pollution ; Noise ; Hazardous Waste ; Solid Waste ; Recycling

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