Impact of Discount Rates on Renewable Energy Investment Timing and Cost-Optimal Energy Transition Pathways in the Philippine Power Sector

Abstract

Energy plays a vital role in enabling social and economic development through its generation, conversion, distribution, and use. In the Philippines, ongoing efforts to boost economic growth and global competitiveness are driving a continuous rise in energy demand. However, the country’s continued dependence on fossil fuel-based power generation poses serious environmental risks, particularly in terms of greenhouse gas emissions and climate change. This study investigates the impact of varying discount rates on energy transition plans under the following scenarios using the TIMES model: RE_PH with 35% renewable energy (RE) penetration by 2030 and 50% by 2040; RE_PH1 with 40% by 2030 and 55% by 2040; and RE_PH2 with 45% by 2030 and 60% by 2040. Results show that lower discount rates promote earlier investment in renewable energy technologies to meet the 2030 and 2040 policy targets across all modeled scenarios. Specifically, at a 3% discount rate, it indicates that deployment of capital-intensive renewable energy technologies, such as pumped hydro storage and onshore wind becomes a more economically viable option and is deployed in period 2024 for PP-PUMP-HYD and 2030 and onwards for PP-ONS, respectively. These early investments can lead to significant operation cost savings compared to baseline 10% discount rate. Furthermore, the 3% discount rate enhances the economic attractiveness of early RE deployment across all scenarios, resulting in lower cumulative investment, lower operating costs, and lower electricity prices over time. These findings highlight the critical role of discount rates in promoting sustainable energy transitions and informing long-term climate planning.