Investment in sustainable energy sources is one of the climate mitigation strategies that can significantly reduce greenhouse gas emissions in the energy sector. However, in developing countries, investment is challenged by high capital expenditures and several uncertainties. This paper aims to provide decision support for investment in sustainable energy projects by evaluating the comparative attractiveness of shifting energy sources from fossil fuels to renewables and nuclear. Applying the real options approach (ROA), this paper calculates the value of the flexibility to postpone the investment decision and identifies the optimal timing (described here as the trigger price of coal) for shifting to sustainable energy sources. Then, various uncertainties are considered, such as coal and electricity prices, negative externality of using fossil fuels, and the risk of a nuclear accident, which are modelled using geometric Brownian motion, Poisson process, and Bernoulli probability. Applying the ROA model in the case of the Philippines, results find that investing in sustainable energy is a better option than continuing to use coal for electricity generation. However, contrary to conventional option valuation result that waiting is a better strategy, this study found that delaying or postponing the investment decisions may lead to possible opportunity losses. Among the available sustainable energy sources, geothermal is the most attractive with trigger prices of coal equal to USD 49.95/ton, followed by nuclear (USD 58.55/ton), wind (USD 69.48/ton), solar photovoltaic (USD 72.04/ton), and hydropower (USD 111.14/ton). Also, the occurrence of jump (extreme) prices of coal, raising the current feed-in-tariff, and considering negative externalities can decrease the trigger prices, which favor investments in sustainable energies. Moreover, the risk of a nuclear disaster favors investment in renewable energy sources over nuclear due to the huge damage costs once an accident occurs. Results provide bases for policy recommendations toward achieving a more secure and sustainable energy sector for developing countries that are highly dependent on imported fossil fuels.
Article Metrics:
Last update:
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/resources11060059Assessing the potential of low-transmissivity aquifers for aquifer thermal energy storage systems: a case study in Flanders (Belgium)
Luka Tas, David Simpson, Thomas Hermans. Hydrogeology Journal, 31 (8), 2023. doi: 10.1007/s10040-023-02696-5Success Factors and Challenges: Implications of Real Options Valuation of Constructed Wetlands as Nature-Based Solutions for Wastewater Treatment
Casper Boongaling Agaton, Patricia Marie Caparas Guila. Resources, 13 (1), 2024. doi: 10.3390/resources13010011Dominant Smart Contracts Based on Major Bargaining Solutions
Elmira Mohammadhosseini Fadafan, Rudolf Vetschera. Group Decision and Negotiation, 33 (2), 2024. doi: 10.1007/s10726-023-09863-9Real Options Analysis of Constructed Wetlands as Nature-Based Solutions to Wastewater Treatment Under Multiple Uncertainties: A Case Study in the Philippines
Casper Boongaling Agaton. Sustainability, 16 (22), 2024. doi: 10.3390/su16229797Water Treatment in Urban Environments: A Guide for the Implementation and Scaling of Nature-based Solutions
Casper Boongaling Agaton, Patricia Marie Caparas Guila, Anne Dominique Hitape Rodriguez. Applied Environmental Science and Engineering for a Sustainable Future, 2024. doi: 10.1007/978-3-031-49282-2_4Techno-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.2023.50165ESG-Driven Investment Decisions in Photovoltaic Projects
Ruolan Wei, Yunlong Ma, Huina Bi, Qi Dong. Energies, 17 (16), 2024. doi: 10.3390/en17164117Assessment of residential renewable energy investment under dynamic market environment: Aspect from household benefits
Qian Xu, Changxu Chen, Xinli Huang, Weiyao Yang. Journal of Environmental Management, 374 , 2025. doi: 10.1016/j.jenvman.2025.124060Sustainable transformation of energy sector: Cluster analysis for the sustainable development strategies of selected European countries
Wadim Strielkowski, Olena Chygryn, Serhii Drozd, Vitaliia Koibichuk. Heliyon, 10 (19), 2024. doi: 10.1016/j.heliyon.2024.e38930Nutrient balance for enhanced recovery of stressed Spirulina platensis
Abo El-Khair B. El-Sayed, Adel W. Almutairi. Environmental Science and Pollution Research, 31 (45), 2024. doi: 10.1007/s11356-024-34979-zThe 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.2023.103204Last update: 2025-04-05 07:29:17
This journal provides immediate open access to its content on the principle that making research freely available to the public supports a greater global exchange of knowledge. Articles are freely available to both subscribers and the wider public with permitted reuse.
All articles published Open Access will be immediately and permanently free for everyone to read and download. We are continuously working with our author communities to select the best choice of license options: Creative Commons Attribution-ShareAlike (CC BY-SA). Authors and readers can copy and redistribute the material in any medium or format, as well as remix, transform, and build upon the material for any purpose, even commercially, but they must give appropriate credit (cite to the article or content), provide a link to the license, and indicate if changes were made. If you remix, transform, or build upon the material, you must distribute your contributions under the same license as the original.