Economic analysis of waste-to-energy investment in the Philippines: A real options approach

Abstract

Waste-to-energy technologies start to gain the attention of developing countries as a sustainable energy source in response to the worsening municipal solid waste management problem. This paper proposes an investment model to analyze the economic feasibility of waste-to-energy projects in developing countries using the Philippines as a case study. Applying the real options approach under uncertainty, we compare the option values, the value of waiting, and the optimal timing of switching technologies from landfill to waste-to-energy. Considering the energy production and investment costs, the optimization results find that incineration, with an optimal electricity price of USD 3cents/KWH, is the best technology option followed by gasification and pyrolysis at USD 7cents/KWH and USD 12cents/KWH, respectively. At the current price of electricity of USD 11cents/KWH, it is more optimal to postpone investment in pyrolysis, otherwise, the tipping should be increased from USD 15/ton to USD 18.5/ton to make pyrolysis a more viable option than continue using the landfill. On the other hand, it is a more optimal decision to invest immediately in either incineration or gasification as delaying investment incurs opportunity losses from generating electricity from these technologies. Furthermore, the paper suggests that the government must support waste-to-energy program as it will significantly contribute in solving the problems on the environment particularly air quality and waste management as well as on energy security and sustainability.