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 |