skip to main content

Optimal Investment Strategy for Solar PV Integration in Residential Buildings: A Case Study in The Philippines

1College of Teacher Education, Mindoro State College of Agriculture and Technology, Calapan City, Philippines

2Utrecht University School of Economics, Utrecht University, Utrecht;, Netherlands

3Copernicus Institute of Sustainable Development, Utrecht University, Utrecht;, Netherlands

4 Senior High School Department, Ceriaco A. Abes Memorial National High School, Calapan City, Philippines

5 English Department, Oriental Mindoro National High School, Calapan City, Philippines

View all affiliations
Received: 3 Sep 2020; Revised: 13 Oct 2020; Accepted: 20 Oct 2020; Available online: 25 Oct 2020; Published: 1 Feb 2021.
Editor(s): H. Hadiyanto
Open Access Copyright (c) 2021 The Authors. Published by Centre of Biomass and Renewable Energy (CBIORE)
Creative Commons License This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Citation Format:

In developing countries, particularly in rural areas, long periods of power outages are experienced as the electricity grid is technically or economically unfeasible.  As solar photovoltaic (PV) is the most potential and suitable source of renewable energy for these areas, this paper analyzes the economic viability of its integration in different types of residential buildings. Applying real optionsapproach under uncertainty in electricity prices, this study compares the attractiveness of adopting solar PV over continuing electricity from the grid focusing on various investment payment schemes including (i) full payment, (ii) distributed payment for 5 or 10 years without a down payment, and (iii) distributed payment for 5 or 10 years with 20% or 40% down payment. Applying the model with the case of the Philippines, the resultswith the full payment strategy obtain option values of USD 6888 for building type-I, USD 15349 for building type-II, USD 21204 for building type-III, USD 27870 for building type-IV, and USD 34251 for building type-V. These option values increase by 21.6% and 22.5% with distributed payment scheme to a 5- or 10-year period and increase by 5% and 13% for distributed payment with 40% and 20% down payment. These option values decrease with investments at later periods. Contrary to the conventional option valuation results of an optimal decision to wait, our findings show the otherwise as earlier investment reduces the risk of opportunity loss from delaying the adoption of solar PV. Among the payment schemes analyzed, the distribution of PV system cost in a 10-year installment periodwithout down payment shows to be the most optimal investment strategy which may encourage lower-income and risk-averse consumers whose decision to adopt solar PV is affected by cost barriers, economic status, and household income. The study suggests the government, particularly in developing countries, to support the integration of own-use solar PV in buildings through incentives and subsidies, as well as financial institutions to offer more affordable terms of payment that encourages low to medium income households to adopt solar PV.Further, this will not only augment the energy deficiency in these countries but also support the global aspirations of reducing greenhouse gas emissions and its adverse effects through gradually shifting to renewable sources of energy.

Fulltext View|Download
Keywords: investment strategy; investment under uncertainty; real options; renewable energy; residential building; solar PV
Funding: Utrecht University; Mindoro State College of Agriculture and Technology

Article Metrics:

  1. Abensur, E. O., Moreira, D. F., & de Faria, A. C. R. (2020). Geometric Brownian motion: an alternative to high-frequency trading for small investors. Independent Journal of Management & Production, 11(3), 1434-1453.
  2. Abdul-Wahab, S., Charabi, Y., Al-Mahruqi, A. M., Osman, I., & Osman, S. (2019). Selection of the best solar photovoltaic (PV) for Oman. Solar Energy, 188, 1156-1168.
  3. Abdul-Wahab, S., Mujezinovic, K., & Al-Mahruqi, A. M. (2019). Optimal design and evaluation of a hybrid energy system for off-grid remote area. Energy Sources, Part A: Recovery, Utilization, and Environmental Effects, 1-13.
  4. Adebayo, V., & Koçyiğit, K. (2017) Techno-economic Analysis of an Off-grid Solar Photovoltaic Energy System for a Typical Rural Household in Adamawa State, Nigeria.
  5. Agaton, C. B. (2018). Use coal or invest in renewables: a real options analysis of energy investments in the Philippines. Renewables: Wind, Water, and Solar, 5(1), 1-8.
  6. Agaton, C. B., Collera, A. A., & Guno, C. S. (2020). Socio-Economic and Environmental Analyses of Sustainable Public Transport in the Philippines. Sustainability, 12(11), 4720.
  7. Agaton, C. B., & Karl, H. (2018). A real options approach to renewable electricity generation in the Philippines. Energy, Sustainability and Society, 8(1), 1.
  8. Agaton, C. B., Guno, C. S., Villanueva, R. O., & Villanueva, R. O. (2019). Diesel or Electric Jeepney? A Case Study of Transport Investment in the Philippines Using the Real Options Approach. World Electric Vehicle Journal, 10(3), 51.
  9. Agaton, C. B., Guno, C. S., Villanueva, R. O., & Villanueva, R. O. (2020). Economic analysis of waste-to-energy investment in the Philippines: A real options approach. Applied Energy, 275, 115265.
  10. Allouhi, A. (2020). Solar PV integration in commercial buildings for self-consumption based on life-cycle economic/environmental multi-objective optimization. Journal of Cleaner Production, 122375.
  11. Andreis, L., Flora, M., Fontini, F., & Vargiolu, T. (2020). Pricing Reliability Options under different electricity price regimes. Energy Economics, 87, 104705.
  12. Bertolini, M., D'Alpaos, C., & Moretto, M. (2018). Do Smart Grids boost investments in domestic PV plants? Evidence from the Italian electricity market. Energy, 149, 890-902.
  13. Borovkova, S., & Schmeck, M. D. (2017). Electricity price modeling with stochastic time change. Energy Economics, 63, 51-65.
  14. Cheng, C., Wang, Z., Liu, M., Chen, Q., Gbatu, A. P., & Ren, X. (2017). Defer option valuation and optimal investment timing of solar photovoltaic projects under different electricity market systems and support schemes. Energy, 127, 594-610.
  15. D’Adamo, I. (2018). The profitability of residential photovoltaic systems. A new scheme of subsidies based on the price of CO2 in a developed PV market. Social Sciences, 7(9), 148.
  16. D’Adamo, I., Falcone, P. M., Gastaldi, M., & Morone, P. (2020). The economic viability of photovoltaic systems in public buildings: Evidence from Italy. Energy, 207, 118316.
  17. De Schepper, E., Van Passel, S., & Lizin, S. (2015). Economic benefits of combining clean energy technologies: the case of solar photovoltaics and battery electric vehicles. International journal of energy research, 39(8), 1109-1119.
  18. Do, T. N., Burke, P. J., Baldwin, K. G., & Nguyen, C. T. (2020). Underlying drivers and barriers for solar photovoltaics diffusion: The case of Vietnam. Energy Policy, 144, 111561.
  19. DOE (Department of Energy) 2019. Philippine Power Statistics. Accessed 20 March 2020
  20. Ellabban, O., & Alassi, A. (2019). Integrated Economic Adoption Model for residential grid-connected photovoltaic systems: An Australian case study. Energy Reports, 5, 310-326.
  21. Enteria, N., Awbi, H., & Yoshino, H. (2015). Application of renewable energy sources and new building technologies for the Philippine single family detached house. International Journal of Energy and Environmental Engineering, 6(3), 267-294.
  22. Gahrooei, M. R., Zhang, Y., Ashuri, B., & Augenbroe, G. (2016). Timing residential photovoltaic investments in the presence of demand uncertainties. Sustainable Cities and Society, 20, 109-123.
  23. Gazheli, A., & van den Bergh, J. (2018). Real options analysis of investment in solar vs. wind energy: Diversification strategies under uncertain prices and costs. Renewable and Sustainable Energy Reviews, 82, 2693-2704.
  24. GIZ (Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH) 2013. “It’s more sun in the Philippines. Available from
  25. Guta, D. D. (2018). Determinants of household adoption of solar energy technology in rural Ethiopia. Journal of Cleaner Production, 204, 193-204.
  26. Hagerman, S., Jaramillo, P., & Morgan, M. G. (2016). Is rooftop solar PV at socket parity without subsidies?. Energy Policy, 89, 84-94.
  27. IEA (International Energy Agency) 2019. Renewables 2019: Market analysis and forecast from 2019 to 2024. Accessed on 12 Aug 2020
  28. IEA (International Energy Agency) 2020. Tracking Buildings. Accessed on 27 July 2020
  29. Ioannou, A., Angus, A., & Brennan, F. (2018). Effect of electricity market price uncertainty modelling on the profitability assessment of offshore wind energy through an integrated lifecycle techno-economic model. J Physics: Conference Series, 1102(1), 012027.
  30. IRENA (International Renewable Energy Agency) 2017. Renewables Readiness Assessment: The Philippines. Accessed on 12 Aug 2020
  31. Jäger-Waldau, A., Kougias, I., Taylor, N., & Thiel, C. (2020). How photovoltaics can contribute to GHG emission reductions of 55% in the EU by 2030. Renewable and Sustainable Energy Reviews, 126, 109836.
  32. Kabir, E., Kim, K. H., & Szulejko, J. E. (2017). Social impacts of solar home systems in rural areas: A case study in Bangladesh. Energies, 10(10), 1615.
  33. Kavlak, G., McNerney, J., & Trancik, J. E. (2018). Evaluating the causes of cost reduction in photovoltaic modules. Energy policy, 123, 700-710.
  34. Khan, T., Khanam, S. N., Rahman, M. H., & Rahman, S. M. (2019). Determinants of microfinance facility for installing solar home system (SHS) in rural Bangladesh. Energy Policy, 132, 299-308.
  35. Krungkaew, S., Kingphadung, K., Kwonpongsagoon, S., & Mahayothee, B. (2020). Costs and benefits of using parabolic greenhouse solar dryers for dried herb products in Thailand. International Journal of GEOMATE, 18(67), 96-101.
  36. Liang, J., Shirsat, A., & Tang, W. (2020). Sustainable community-based PV-storage planning using the Nash bargaining solution. International Journal of Electrical Power & Energy Systems, 118, 105759.
  37. Lin, B., & Chen, Y. (2019). Does electricity price matter for innovation in renewable energy technologies in China? Energy Economics, 78, 259-266.
  38. Matsuo, T. (2019). Fostering grid-connected solar energy in emerging markets: The role of learning spillovers. Energy Research & Social Science, 57, 101227.
  39. McKenna, E., Pless, J., & Darby, S. J. (2018). Solar photovoltaic self-consumption in the UK residential sector: New estimates from a smart grid demonstration project. Energy Policy, 118, 482-491.
  40. Mehta, P., Griego, D., Nunez-Jimenez, A., & Schlueter, A. (2019). The Impact of self-consumption regulation on individual and community solar PV adoption in Switzerland: an agent-based model. In Journal of Physics: Conference Series (Vol. 1343, No. 1, p. 012143). IOP Publishing.
  41. Moon, Y., & Baran, M. (2018). Economic analysis of a residential PV system from the timing perspective: A real option model. Renewable energy, 125, 783-795.
  42. Nemet, G. F., Lu, J., Rai, V., & Rao, R. (2020). Knowledge spillovers between PV installers can reduce the cost of installing solar PV. Energy Policy, 144, 111600.
  43. O'Shaughnessy, E., Cutler, D., Ardani, K., & Margolis, R. (2018). Solar plus: A review of the end-user economics of solar PV integration with storage and load control in residential buildings. Applied energy, 228, 2165-2175.
  44. Palm, J. (2018). Household installation of solar panels–Motives and barriers in a 10-year perspective. Energy Policy, 113, 1-8.
  45. Penizzotto, F., Pringles, R., & Olsina, F. (2019). Real options valuation of photovoltaic power investments in existing buildings. Renewable and Sustainable Energy Reviews, 114, 109308.
  46. Pode, R. (2013). Financing LED solar home systems in developing countries. Renewable and Sustainable Energy Reviews, 25, 596-629.
  47. Purohit, I., Purohit, P., & Shekhar, S. (2013). Evaluating the potential of concentrating solar power generation in Northwestern India. Energy policy, 62, 157-175.
  48. Ren, M., Mitchell, C. R., & Mo, W. (2020). Dynamic life cycle economic and environmental assessment of residential solar photovoltaic systems. Science of The Total Environment, 137932.
  49. Rodrigues, D. L., Ye, X., Xia, X., & Zhu, B. (2020). Battery energy storage sizing optimisation for different ownership structures in a peer-to-peer energy sharing community. Applied Energy, 262, 114498.
  50. Rodrigues, S., Chen, X., & Morgado-Dias, F. J. E. P. (2017). Economic analysis of photovoltaic systems for the residential market under China's new regulation. Energy Policy, 101, 467-472.
  51. Sagani, A., Mihelis, J., & Dedoussis, V. (2017). Techno-economic analysis and life-cycle environmental impacts of small-scale building-integrated PV systems in Greece. Energy and Buildings, 139, 277-290.
  52. Schiel, C., Glöser-Chahoud, S., & Schultmann, F. (2019). A real option application for emission control measures. Journal of Business Economics, 89(3), 291-325.
  53. Spertino, F., Chicco, G., Ciocia, A., Corgnati, S., Di Leo, P., & Raimondo, D. (2015, June). Electricity consumption assessment and PV system integration in grid-connected office buildings. In 2015 IEEE 15th International Conference on Environment and Electrical Engineering (EEEIC) (pp. 255-260). IEEE.
  54. Stankuniene, G., Streimikiene, D., & Kyriakopoulos, G. L. (2020). Systematic Literature Review on Behavioral Barriers of Climate Change Mitigation in Households. Sustainability, 12(18), 7369.
  55. Streimikiene, D., Lekavičius, V., Baležentis, T., Kyriakopoulos, G. L., & Abrhám, J. (2020). Climate Change Mitigation Policies Targeting Households and Addressing Energy Poverty in European Union. Energies, 13(13), 3389.
  56. Stoyanov, L., Zarkov, Z., Notton, G., & Lazarov, V. (2020). Design Opportunities and Building Integration of PV systems. In Energy Efficient Building Design (pp. 21-40). Springer, Cham.
  57. Tantisattayakul, T., & Kanchanapiya, P. (2017). Financial measures for promoting residential rooftop photovoltaics under a feed-in tariff framework in Thailand. Energy policy, 109, 260-269.
  58. Tian, L., Pan, J., Du, R., Li, W., Zhen, Z., & Qibing, G. (2017). The valuation of photovoltaic power generation under carbon market linkage based on real options. Applied energy, 201, 354-362.
  59. Torani, K., Rausser, G., & Zilberman, D. (2016). Innovation subsidies versus consumer subsidies: A real options analysis of solar energy. Energy Policy, 92, 255-269.
  60. Tracking Buildings. International Energy Agency, 2020. Available from:
  61. Trappey, A. J., Trappey, C. V., Tan, H., Liu, P. H., Li, S. J., & Lin, L. C. (2016). The determinants of photovoltaic system costs: an evaluation using a hierarchical learning curve model. Journal of Cleaner Production, 112, 1709-1716.
  62. Yadav, P., Heynen, A. P., & Palit, D. (2019). Pay-As-You-Go financing: A model for viable and widespread deployment of solar home systems in rural India. Energy for sustainable development, 48, 139-153.
  63. Zeng, Y., & Chen, W. (2020). The socially optimal energy storage incentives for microgrid: A real option game-theoretic approach. Science of The Total Environment, 710, 136199.
  64. Zhang, M. M., Zhou, P., & Zhou, D. Q. (2016). A real options model for renewable energy investment with application to solar photovoltaic power generation in China. Energy Economics, 59, 213-226.
  65. Zhang, M. M., Wang, Q., Zhou, D., & Ding, H. (2019). Evaluating uncertain investment decisions in low-carbon transition toward renewable energy. Applied Energy, 240, 1049-1060.
  66. Zhang, X., Shen, J., Adkins, D., Yang, T., Tang, L., Zhao, X., ... & Luo, H. (2015). The early design stage for building renovation with a novel loop-heat-pipe based solar thermal facade (LHP-STF) heat pump water heating system: Techno-economic analysis in three European climates. Energy Conversion and Management, 106, 964-986.

Last update:

  1. Will a Geopolitical Conflict Accelerate Energy Transition in Oil-Importing Countries? A Case Study of the Philippines from a Real Options Perspective

    Casper Boongaling Agaton. Resources, 11 (6), 2022. doi: 10.3390/resources11060059
  2. Pandemic and Typhoon: Positive Impacts of a Double Disaster on Mental Health of Female Students in the Philippines

    Lavinia Javier Cueto, Casper Boongaling Agaton. Behavioral Sciences, 11 (5), 2021. doi: 10.3390/bs11050064
  3. Barriers and Drivers of Transition to Sustainable Public Transport in the Philippines

    Charmaine Samala Guno, Angelie Azcuna Collera, Casper Boongaling Agaton. World Electric Vehicle Journal, 12 (1), 2021. doi: 10.3390/wevj12010046
  4. Socio-Economic Prospects of Solar PV Uptake in Energy Policy Landscape of Pakistan

    Faraz Ul Haq, Tanzeel Ur Rashid, Ubaid Ur Rehman Zia. International Journal of Renewable Energy Development, 11 (4), 2022. doi: 10.14710/ijred.2022.46082
  5. Decision Support for Investments in Sustainable Energy Sources Under Uncertainties

    Kenneth Ian Talosig Batac, Angelie Azcuna Collera, Resy Ordona Villanueva, Casper Boongaling Agaton. International Journal of Renewable Energy Development, 11 (3), 2022. doi: 10.14710/ijred.2022.45913
  6. Socio-Economic and Environmental Analyses of Solar Irrigation Systems for Sustainable Agricultural Production

    Charmaine Samala Guno, Casper Boongaling Agaton. Sustainability, 14 (11), 2022. doi: 10.3390/su14116834
  7. Valuing photovoltaic power plants by compound real options

    Bruno Mombello, Fernando Olsina, Rolando Pringles. Renewable Energy, 216 , 2023. doi: 10.1016/j.renene.2023.119021
  8. Dynamic Characteristics and Evolution Analysis of Information Dissemination Theme of Social Networks under Emergencies

    Yuan Zhang, Yanxi Xie, Victor Shi, Ke Yin. Behavioral Sciences, 13 (4), 2023. doi: 10.3390/bs13040282
  9. Solar energy development in households: ways to improve state policy in Ukraine and Latvia

    Iryna Sotnyk, Tetiana Kurbatova, Andra Blumberga, Oleksandr Kubatko, Oleksandra Kubatko. International Journal of Sustainable Energy, 41 (11), 2022. doi: 10.1080/14786451.2022.2092106
  10. Application of real options in carbon capture and storage literature: Valuation techniques and research hotspots

    Casper Boongaling Agaton. Science of The Total Environment, 795 , 2021. doi: 10.1016/j.scitotenv.2021.148683
  11. Techno-economic analysis of fixed versus sun-tracking solar panels

    Akram Elahi Gol, Milan Ščasný. International Journal of Renewable Energy Development, 12 (3), 2023. doi: 10.14710/ijred.2023.50165
  12. Analyzing the Influence of Risk Models and Investor Risk-Aversion Disparity on Portfolio Selection in Community Solar Projects: A Comparative Case Study

    Mahmoud Shakouri, Chukwuma Nnaji, Saeed Banihashemi, Khoung Le Nguyen. Risks, 12 (5), 2024. doi: 10.3390/risks12050075
  13. Environmental and economic analyses of different size photovoltaic installation in Poland

    Piotr Olczak, Agnieszka Żelazna, Kinga Stecuła, Dominika Matuszewska, Łukasz Lelek. Energy for Sustainable Development, 70 , 2022. doi: 10.1016/j.esd.2022.07.016
  14. Recent Advances in Machine Learning Research for Nanofluid-Based Heat Transfer in Renewable Energy System

    Prabhakar Sharma, Zafar Said, Anurag Kumar, Sandro Nižetić, Ashok Pandey, Anh Tuan Hoang, Zuohua Huang, Asif Afzal, Changhe Li, Anh Tuan Le, Xuan Phuong Nguyen, Viet Dung Tran. Energy & Fuels, 36 (13), 2022. doi: 10.1021/acs.energyfuels.2c01006
  15. Comparative Analysis of Hybrid Renewable Energy Systems for Off-Grid Applications in Chad

    Abdelhamid Issa Hassane, Djamal Hissein Didane, Abakar Mahamat Tahir, Ruben Martin Mouangue, Jean Gaston Tamba, Jean-Marie Hauglustaine. International Journal of Renewable Energy Development, 11 (1), 2022. doi: 10.14710/ijred.2022.39012
  16. Now or later? Optimal timing of mangrove rehabilitation under climate change uncertainty

    Casper Boongaling Agaton, Angelie Azcuna Collera. Forest Ecology and Management, 503 , 2022. doi: 10.1016/j.foreco.2021.119739
  17. The use of real options approach in solar photovoltaic literature: A comprehensive review

    Joaquín Lazo, David Watts. Sustainable Energy Technologies and Assessments, 57 , 2023. doi: 10.1016/j.seta.2023.103204
  18. Performance and economic analysis of a reversed circular flow jet impingement bifacial PVT solar collector

    Muhammad Amir Aziat Bin Ishak, Adnan Ibrahim, Kamarruzaman Sopian, Mohd Faizal Fauzan, Aqil Afham Rahmat, Nurul Jannah Yusaidi. International Journal of Renewable Energy Development, 12 (4), 2023. doi: 10.14710/ijred.2023.54348
  19. Techno-Economic and Environmental Feasibility Study of a Hybrid Photovoltaic Electrification System in Back-up Mode : A Case Report

    Henri Wilfried Hounkpatin, Hagninou Elagnon Venance Donnou, Victorin Kouamy Chegnimonhan, Latifath Inoussa, Basile Bruno Kounouhewa. International Journal of Renewable Energy Development, 12 (2), 2023. doi: 10.14710/ijred.2023.46372
  20. Solar photovoltaic technology in isolated rural communities in Latin America and the Caribbean

    Bárbara Liz Miravet-Sánchez, Alberto E. García-Rivero, Ricardo A. Yuli-Posadas, Luis Alberto Inostroza-Ruiz, Victor Fernández-Guzmán, Yuli Anabel Chávez-Juanito, José Miguel Rutti-Marin, José Alfonso Apesteguia-Infantes. Energy Reports, 8 , 2022. doi: 10.1016/j.egyr.2021.12.052
  21. Off-Grid Electrification Using Renewable Energy in the Philippines: A Comprehensive Review

    Arizeo Salac, Jairus Somera, Michael Castro, Maricor Divinagracia-Luzadas, Louis Danao, Joey Ocon. Smart Cities, 7 (3), 2024. doi: 10.3390/smartcities7030043

Last update: 2024-05-29 04:26:34

No citation recorded.