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Table 2 Description of variables and parameters

From: A real options approach to renewable electricity generation in the Philippines

Notation

Description

C D

Annual marginal cost of electricity production using diesel, in US$

C R

Annual marginal cost of electricity production using renewable energy, in US$

I R

Investment cost for renewable energy, in US$

NPV R

Net present value of investing in RE, in US$

P D, t

Stochastic price of diesel, in US$/barrel

P E

Electricity price, in US$/MWh

Q D

Quantity of diesel needed to produce Q E , in barrels

Q E

Quantity of electricity produced, in MWh

V D, t

Option value of investment at each price of diesel, D, at each period of investment, t, in US$

\( {\mathbb{E}\mathrm{NPV}}_{D,t} \)

Expected net present value of continuing diesel for electricity generation, in US$

\( {\mathbb{i}}_{\tau \le T} \)

Indicator equal to 1 if switching to RE is made, otherwise, equal to 0

π D, t

Profit of using diesel for electricity generation from initial period of investment, 0, to period of switching to RE, τ, in US$

T

Total period of investment

tax

Externality tax for using diesel

ρ

Discount factor

τ

Period of switching from diesel to RE