Diesel or Electric Jeepney? A Case Study of Transport Investment in the Philippines Using the Real Options Approach

Abstract

The Philippines is moving towards a more sustainable public transport system by introducing a public utility vehicle (PUV) modernization program with electric jeepneys (e-jeepneys) and modernized diesel jeepneys. Despite its potential to address problems related to air pollution, traffic congestion, dependence on fuel imports, and carbon emissions, transport groups show resistance to the adoption of the government program due to costs and investment risk issues. This study aims to guide transport operators in making investment decisions between the modernized diesel jeepney and the e-jeepney fleet. Applying the real options approach (ROA), this research evaluates option values and optimal investment strategies under uncertainties in diesel prices, jeepney base fare price, electricity prices, and government subsidy. The optimization results reveal a better opportunity to invest in the e-jeepney fleet in all scenarios analyzed. Results also show a more optimal decision strategy to invest in the e-jeepney immediately in the current business environment, as delaying or postponing investment may incur opportunity losses. To make the adoption of the e-jeepney more attractive to transport operators, this study further suggests government actions to increase the amount of subsidy and base fares, establish public charging stations, and continue efforts to rely on cleaner, cheaper, and renewable sources of electricity.

Full text

Article
Diesel or Electric Jeepney? A Case Study of Transport
Investment in the Philippines Using the Real
Options Approach
Casper Boongaling Agaton 1, 2, * , Charmaine Samala Guno 3, Resy Ordona Villanueva 4
and Riza Ordona Villanueva 4
1Copernicus Institute of Sustainable Development, Utrecht University, Princetonlaan 8a, 3584 CB Utrecht,
The Netherlands
2Utrecht University School of Economics, Kriekenpitplein 21, 3584 EC Utrecht, The Netherlands
3Mindoro State College of Agriculture and Technology, Masipit, Calapan City 5200, Philippines
4St. Paul University, Manila, 680 Pedro Gil St, Malate, Manila 1004, Philippines
*Correspondence: c.agaton@uu.nl; Tel.: +31-30-253-7397
Received: 5 May 2019; Accepted: 20 August 2019; Published: 22 August 2019


Abstract:
The Philippines is moving towards a more sustainable public transport system by
introducing a public utility vehicle (PUV) modernization program with electric jeepneys (e-jeepneys)
and modernized diesel jeepneys. Despite its potential to address problems related to air pollution,
traffic congestion, dependence on fuel imports, and carbon emissions, transport groups show
resistance to the adoption of the government program due to costs and investment risk issues.
This study aims to guide transport operators in making investment decisions between the modernized
diesel jeepney and the e-jeepney fleet. Applying the real options approach (ROA), this research
evaluates option values and optimal investment strategies under uncertainties in diesel prices, jeepney
base fare price, electricity prices, and government subsidy. The optimization results reveal a better
opportunity to invest in the e-jeepney fleet in all scenarios analyzed. Results also show a more
optimal decision strategy to invest in the e-jeepney immediately in the current business environment,
as delaying or postponing investment may incur opportunity losses. To make the adoption of the
e-jeepney more attractive to transport operators, this study further suggests government actions to
increase the amount of subsidy and base fares, establish public charging stations, and continue efforts
to rely on cleaner, cheaper, and renewable sources of electricity.
Keywords:
electric vehicle; jeepney; Monte Carlo simulation; optimization; investment under uncertainty;
real options
1. Introduction
In order to address the global problems of greenhouse gas (GHG) emissions, air pollution,
and dependence on fossil fuels, different countries and regions are finding cleaner and more sustainable
modes of transportation. Currently, the transport sector accounts for 23% of global energy-related CO
2
emissions and is continuously growing due to increasing passenger and freight activity [
1
]. As aviation,
shipping, and heavy-duty roads are the most difficult modes to decarbonize, the electrification of
passenger cars and public utility vehicles (PUVs) appears to have the potential to reduce GHG emissions
and other pollutants [
2
,
3
]. Developed countries put considerable effort into making electric mobility
more attractive by providing fiscal incentives, subsidy schemes, and public charging infrastructure.
This resulted in a record 1.1 million electric vehicles (EVs) sold worldwide in 2017, which is expected to
increase to 11 million in 2025 and surge to 30 million in 2030 [
4
]. Meanwhile, developing countries adopt
World Electric Vehicle Journal 2019,10, 51; doi:10.3390/wevj10030051 www.mdpi.com/journal/wevj

World Electric Vehicle Journal 2019,10, 51 2 of 17
electric mobility that suits the local circumstances such as electric scooters in India, electric “tuk-tuks”
in Thailand and Kenya, second-hand electric cars in Jordan, and e-jeepneys in the Philippines.
Jeepneys, refurbished American vehicles left after the Second World War, are the Philippines’ most
popular mode of transportation, providing cheaper rides and allowing millions of passengers to hop
on and offanywhere. There are around 270,000 franchised jeepney units on the road across the country,
with some 75,000 units in Metro Manila alone. With the country’s fast development and economic
growth, old-model jeepneys have become the main contributor to air pollution and traffic congestion in
the cities. According to the Manila Aerosol Characterization Experiment (MACE 2015) study, jeepneys,
which account for 20% of the total vehicle fleet, are responsible for 94% of the soot particle mass
in Metro Manila, with 2000 times higher emissions compared to the EURO 6 standard for diesel in
Europe [
5
]. To address this problem, the government recently launched the “Public Utility Vehicle
(PUV) Modernization Program”, which aims to make the country’s public transportation system
efficient and environment-friendly by phasing out jeepneys, buses, and other PUVs that are at least
15 years old and replacing them with safer, more comfortable and more sustainable alternatives [
6
].
Replacement PUVs, such as e-jeepneys and modernized diesel jeepneys, are required to have at least
a Euro 4-compliant engine or an electric engine and must contain safety features like speed limiters,
accessibility features like ramps and seatbelts, closed-circuit television cameras, Wi-fi and USB ports,
GPS, and a dashboard camera (see Figure 1) [
7
]. Currently, the government provides a 5% subsidy to
every e-jeepney unit, which costs between USD 64.19 M and USD 73.36 M/unit, payable within 7 years
at a 6% interest rate. This e-jeepney investment cost is three times the average price of a brand new
modernized diesel jeepney, which only costs USD 18.34 M to USD 27.51 M/unit. Regardless of the
potential to solve traffic conditions and air pollution, provide new jobs, enhance the tourism industry,
and streamline public transport, the modernization program has faced numerous protests from drivers
and operator organizations due to financing issues. This gives an impetus to conduct a study that
analyzes the economic viability of adopting the modernized PUV and suggests investment strategies
making the e-jeepney more attractive than the diesel jeepney.
World Electric Vehicle Journal 2019, 10, x FOR PEER REVIEW 2 of 17
in 2017, which is expected to increase to 11 million in 2025 and surge to 30 million in 2030 [4].
Meanwhile, developing countries adopt electric mobility that suits the local circumstances such as
electric scooters in India, electric “tuk-tuks” in Thailand and Kenya, second-hand electric cars in
Jordan, and e-jeepneys in the Philippines.
Jeepneys, refurbished American vehicles left after the Second World War, are the Philippines’
most popular mode of transportation, providing cheaper rides and allowing millions of passengers
to hop on and off anywhere. There are around 270,000 franchised jeepney units on the road across
the country, with some 75,000 units in Metro Manila alone. With the country’s fast development and
economic growth, old-model jeepneys have become the main contributor to air pollution and traffic
congestion in the cities. According to the Manila Aerosol Characterization Experiment (MACE 2015)
study, jeepneys, which account for 20% of the total vehicle fleet, are responsible for 94% of the soot
particle mass in Metro Manila, with 2000 times higher emissions compared to the EURO 6 standard
for diesel in Europe [5]. To address this problem, the government recently launched the “Public
Utility Vehicle (PUV) Modernization Program”, which aims to make the country’s public
transportation system efficient and environment-friendly by phasing out jeepneys, buses, and other
PUVs that are at least 15 years old and replacing them with safer, more comfortable and more
sustainable alternatives [6]. Replacement PUVs, such as e-jeepneys and modernized diesel jeepneys,
are required to have at least a Euro 4-compliant engine or an electric engine and must contain safety
features like speed limiters, accessibility features like ramps and seatbelts, closed-circuit television
cameras, Wi-fi and USB ports, GPS, and a dashboard camera (see Figure 1) [7]. Currently, the
government provides a 5% subsidy to every e-jeepney unit, which costs between USD 64.19 M and
USD 73.36 M/unit, payable within 7 years at a 6% interest rate. This e-jeepney investment cost is three
times the average price of a brand new modernized diesel jeepney, which only costs USD 18.34 M to
USD 27.51 M/unit. Regardless of the potential to solve traffic conditions and air pollution, provide
new jobs, enhance the tourism industry, and streamline public transport, the modernization program
has faced numerous protests from drivers and operator organizations due to financing issues. This
gives an impetus to conduct a study that analyzes the economic viability of adopting the modernized
PUV and suggests investment strategies making the e-jeepney more attractive than the diesel jeepney.
(a) (b) (c)
Figure 1. Most common public utility vehicles in the Philippines: (a) traditional diesel jeepney; (b)
modernized diesel jeepney with Euro 4-compliant engine; (c) air-conditioned e-jeepney. Source: Land
Transportation Franchising and Regulatory Board (LTFRB).
Traditional valuation methods for transportation investment projects in the Philippines include
return on investment (ROI), payback period, net present value (NPV), internal rate of return (IRR),
and cost-benefit analysis (CBA) [8–10]. However, these methods do not account for possible
uncertainties that affect investment decisions such as fuel prices, demand and prices of products, fare
prices, government policies, and technological advancement. The real options approach (ROA)
overcomes these limitations by combining uncertainty and risk with flexibility in making investment
decisions, as potential factors that give additional value to the project [11]. Several literature works
analyze investment decisions, particularly for electric vehicles, using this approach. Among these
studies include a choice between hybrid vehicles and EVs, while considering the option to change
Figure 1.
Most common public utility vehicles in the Philippines: (
a
) traditional diesel jeepney;
(
b
) modernized diesel jeepney with Euro 4-compliant engine; (
c
) air-conditioned e-jeepney. Source:
Land Transportation Franchising and Regulatory Board (LTFRB).
Traditional valuation methods for transportation investment projects in the Philippines include
return on investment (ROI), payback period, net present value (NPV), internal rate of return (IRR),
and cost-benefit analysis (CBA) [
8
–
10
]. However, these methods do not account for possible
uncertainties that affect investment decisions such as fuel prices, demand and prices of products,
fare prices, government policies, and technological advancement. The real options approach (ROA)
overcomes these limitations by combining uncertainty and risk with flexibility in making investment
decisions, as potential factors that give additional value to the project [
11
]. Several literature works
analyze investment decisions, particularly for electric vehicles, using this approach. Among these
studies include a choice between hybrid vehicles and EVs, while considering the option to change

World Electric Vehicle Journal 2019,10, 51 3 of 17
promotion from hybrid vehicles (HVs) to EVs in the future [
12
]; redesigning or investing in gas,
hybrid electric and EVs under uncertainties in gas prices and regulatory standards [
13
]; the adoption
of EVs for mail and parcel distribution, considering the uncertainty about future fuel prices and
future battery costs [
14
]; market growth of investments in plug-in EVs and charging infrastructure
for plug-in EV users under fluctuations in gasoline prices [
15
]; investment decisions and patterns
related to HVs under technological and market uncertainties and irreversibility, which impacts the
investment and innovation decisions of automotive firms, supporting the development of more
sustainable vehicle technologies [
16
]; and analyzing flexible lease contracts in the fleet replacement
problem with alternative fuel vehicles considering CO
2
prices, fuel prices, mileage covered by a vehicle,
fuel consumption, and technological uncertainties [17].
To the best of our knowledge, we rarely find any literature applying ROA in EV investments
in the context of developing countries, particularly for countries that are highly dependent on
imported fossil fuel products. These studies include a replacement of old conventional fuel-powered
vehicles with hybrid EVs under uncertainty in fuel prices [
18
]; optimal rail transit investment under
time-inconsistent preferences and population uncertainty [
19
]; and a ROA model addressing transit
technology investment considering uncertainty in urban population size [
20
]. We try to contribute
to the existing literature by proposing a ROA framework for analyzing a PUV investment project by
taking the case of the Philippines. This study is very valuable and timely as the country is moving
from a carbon-intensive towards a low- to zero-carbon public transport system. Applying the ROA,
this research aims to analyze the decision of a transport operator to invest either in the modernized
diesel jeepney or in the e-jeepney fleet. As the country is heavily dependent on imported fossil fuel
products with 55% import from diesel demand [
21
], we consider using the volatility of diesel prices as
the main uncertainty in estimating the option values and optimal timing of investment in PUV projects.
Further, we analyze how base fare price, electricity price, and government subsidy in the e-jeepney
affect the investment decision-making process. We then compare the usefulness of the proposed ROA
model over the traditional valuation methods in analyzing PUV investment projects. We finally aim to
suggest government policies that boost investments in EVs to realize the government’s goal of a more
sustainable and environment-friendly transport system.
2. Materials and Methods
We consider a transport operator or company who has the option to invest in a project of buying a
fleet of modernized diesel jeepneys, or a fleet of e-jeepneys. The net present value of investing in diesel
jeepneys NPVjcan be expressed in Equation (1).
NPVj=
Tj
X
t=0
ρtπj−Ij=
Tj
X
t=0
ρtPjQj−Pd,tQd−Cj−Ij(1)
where
πj
is the annual cash flow of diesel jeepney operation from period 0 to
Tj
, the effective lifetime
of the jeepney;
ρ
is the social discount factor equal to 1
/(1+δ)t
;
δ
is the risk-free interest rate, and
Ij
is
the cost of investment in the diesel jeepney fleet including the disposal cost. The annual cash flow
is computed from the average earnings
Pj
from an individual vehicle unit
Qj
minus the operations
and maintenance costs
Cj
, which include the driver salary, boundary, registration, franchise, and
maintenance, and the fuel cost that is equal to the amount of fuel
Qd
used by the fleet times the price
of diesel.
In line with previous studies [
22
–
24
], we assume that the price of diesel P
d,t
is stochastic and
follows the Geometric Brownian motion (GBM), as shown in Equation (2):
dPd,t=αPd,tdt +σPd,tdWt(2)

World Electric Vehicle Journal 2019,10, 51 4 of 17
where
Wt
is a Wiener process, and the percentage drift,
α
, and the percentage volatility,
σ
, are constant.
We apply Ito’s formula to solve Equation (2) and obtain:
ln Pd,t
Pd,0
= α−σ2
2!t+σWt(3)
Using Equation (3), we apply the Augmented Dickey–Fuller (ADF) unit root test to determine the
drift and variance of diesel prices, as shown in regression Equation (4):
ln Pd,t
Pd,0
=g(1)+g(2)lnPd,0 +
L
X
j=1
λj∆lnPd,t−j+t(4)
where
g(1)=α−σ2
2t
,
g(2)
is a coefficient estimated in the unit root test,
λj
is a coefficient for
L
number of lags for
∆lnPd,t=lnPd,t−lnPd,0
, and
t=σWt
. From the ADF test result, we estimate the
future diesel prices, as shown in Equation (5):
Pd,t+1=Pd,t+αPd,t+σPd,tεt(5)
where
α
and
σ
are the drift and variance parameters representing the mean and volatility of the price
process, and εt∼N(0, 1), a random number.
On the other hand, the net present value of investing in e-jeepneys NPVe
j
is expressed in Equation (6):
NPVe j =
Tej
X
t=0
ρtπej +s−Iej =
Tej
X
t=0
ρtPejQe j −PeQe−Cej+s−Ie j (6)
where
πej
is the annual cash flow of e-jeepney operation from period 0 to
Tej
;
s
is the government
subsidy for jeepney modernization; and
Iej =PρtI(1+i)+Dej
is the e-jeepney investment cost, which
can be loaned at
i
interest rate with
I
monthly amortization up to a certain number of years and incur a
disposal cost at the end of its lifetime
Tej
. The annual cash flow is calculated from the average annual
earnings
Pej
of each e-jeepney
Qej
minus the cost of electricity
Pe
consumed by the fleet
Qe
and the
operations and maintenance cost Cej, as described in Equation (1).
The investor’s problem is to maximize the value of the investment subject to stochastic prices of
diesel fuel, as shown in Equation (4):
maxnNPVe j,EhNPVjiPd,to(7)
where the expected NPV of diesel jeepney
EhNPVji≈1
M
M
P
m=1
NPVj,m
is calculated using Monte
Carlo simulations at a sufficiently large number of times
M
, subject to stochastic prices of diesel.
From Equation (7), investment option values at each initial price of diesel
VPd,t
are solved using the
optimization, as shown in Equation (8):
VPd,t=maxnNPVe j,EhNPVjiPd,to(8)
We describe the optimal timing of investment in e-jeepneys
P∗
d
as the minimum price of diesel fuel,
where the maximized option value
VPd,t
at the initial diesel price
t
is equal to the maximized option
value VPd,t+1at the initial diesel price t+1, as shown in Equation (9):
P∗
d=minnPd,tVPd,tPd,t=VPd,t+1Pd,to(9)

World Electric Vehicle Journal 2019,10, 51 5 of 17
Comparing
P∗
d
with the current price of diesel yields various strategies, as described in Equation (10),
where no investment should be made if VP∗
d<0; otherwise, invest in:
e−jeepney,i f
diesel −f ueled jeepne y
indi f f erent,i f
,i f
Pcur
d>P∗
d
Pcur
d<P∗
d
Pcur
d=P∗
d











(10)
To estimate the real option values, we create a dynamic optimization program using Matlab
divided into four segments. The first segment estimates the stochastic prices of diesel fuel and
follows GBM using Equation (5). In the second segment, we incorporate these prices into the
NPVj
in
Equation (1). The third segment includes the Monte Carlo simulation to calculate the expected NPV of
the diesel jeepney
EhNPVji
. The last segment is the dynamic optimization to calculate the maximized
value of either investing in the e-jeepney or in the diesel jeepney, at each initial price of diesel. We plot
all estimated values of NPVs and optimization results using Excel, as shown in the following section.
We finally compare the ROA estimations with traditional valuation methods including the NPV,
payback period (PBP), returns on investment (ROI), and internal rate of return (IRR), using Equations (1),
(6), and (11–13) as shown below. The PBP refers to the amount of time it takes to recover the cost of an
investment. This is equal to the cost of the investment divided by the annual net cash flow, as described
in Equation (11):
PBP =investment cost
annual net cash f low (11)
The ROI is the benefit to an investor resulting from an investment and is described using
Equation (12):
ROI =net income −expenses
total investment ×100 (12)
The IRR is the discount rate that makes the NPV equal to zero, as shown in Equation (13).
We calculate the IRR using MS Excel Solver.
IRR =NPV =
T
X
t=1
annual net cash f low
(1+IRR)t−I=0 (13)
In this research, we use data from various government agencies to estimate the parameters for
the optimization problem. Investment data, including the costs, fare prices, electricity price, subsidy
schemes, operations and maintenance cost, proposed driver salary, franchising, diesel consumption
for a jeepney, and electricity consumption for an e-jeepney, are estimated using the data from the
Philippines’ Department of Transportation (DoTr), Land Transportation Franchising and Regulatory
Board (LTFRB), and Department of Energy (DOE). 26-period average annual price data from World
Bank -development indicators are used to run the Augmented Dickey–Fuller unit root test for the
stochastic process of diesel (see Supplementary Material Table S2). The test result confirms that
Pd,t
follows GBM with
α=
0.01143 and
σ=
0.02608. These parameters are then used to generate stochastic
prices of diesel, as described in Equation (2). The optimization results are tested for sensitivity analysis
with respect to fare prices, electricity prices, and government subsidy. Six jeepney fares are analyzed:
USD 21.81c (PHP 10) current base fare; a proposed higher fare, USD 26.17c (PHP 2 addition); and some
reductions in fare prices, USD 17.45c (reduced by PHP 2), USD 15.27c (by PHP 3), USD 13.09c (by
PHP 4), and USD 10.91c (by PHP 5). For the electricity price scenario, the current USD 22.20c (PHP
10.18/kWh) electricity rate is adjusted to a possible PHP2 decline in prices to USD 17.45c/kWh, and
PHP3 and PHP5 increases to USD 28.35c/kWh and USD 32.72/kWh. Finally, proposed 10% and 0%
subsidies are analyzed along with the current government subsidy of 5% of the investment. All data
and variables, including the description and estimation, are summarized as shown in Supplementary
Material Table S1.

World Electric Vehicle Journal 2019,10, 51 6 of 17
3. Results
3.1. Traditional Valuation Methods
Table 1summarizes the financial estimation results for PUV modernization projects using the
traditional valuation methods. The results show that NPVs for both the e-jeepney and the modernized
diesel jeepney projects are positive, which indicates positive returns for investing in any of the
alternatives. Despite the high investment cost for each e-jeepney unit, results reveal a better investment
opportunity for the e-jeepney fleet, with USD 4.892 million NPV rather than USD 3.138 million for
the modernized diesel jeepney fleet. The main reasons for this include the more energy efficient
e-jeepney, higher earnings from the larger seating capacity of the e-jeepney, and the high fuel cost for
the traditional jeepney. This result supports previous claims that investing in electric PUVs is more
profitable than combustion vehicles in the Philippines due to higher passenger capacity, lower fuel
consumption, and safer body design [8,9].
Table 1. Financial estimation results using traditional valuation methods.
Valuation Method E-Jeepney Modernized Diesel Jeepney
Net present value (NPV) (USD) 4.892 million 3.138 million
Payback period (PBP) (years) 4.09 3.28
Return on investment (ROI) (30 years) 373% 490%
Internal rate of return (IRR) 32.36 43.89
On the other hand, other traditional valuation methods favor investment in the diesel jeepney
fleet with shorter PBP, higher ROI, and higher IRR. The PBP estimation shows that an investment in the
modernized diesel jeepney fleet can be recovered in 3.28 years, while it is 4.09 years for the e-jeepney
fleet. Over the 30-year lifetime of jeepney operation, the diesel project returns the investment by 5 times
while it is quadruple for the e-jeepney project. These results are due to higher investment costs for
the e-jeepney, which are triple the cost for the diesel jeepney. Further, the IRRs for both projects are
also higher than the hurdle rate of 15% set by the Philippine government [
25
], which implies that both
projects are profitable.
While the traditional financial tools are already practical methods for PUV project valuation,
these all-or-nothing strategies, outsetting all future outcomes as fixed, pose several potential problems.
These include a constant nature of weighted average cost of capital through time, undervaluing the
investment, the estimation of economic life, which forecasts errors in creating the future cash flows,
and insufficient tests for the plausibility of the final results [
26
]. In a stochastic world, there would
be fluctuations in business conditions that would change the value of the project [
26
]. Meanwhile,
ROA can mitigate some of these problematic areas by combining risks and uncertainties in the future
cash flow, with managerial flexibility in making investment decisions that give additional value to the
project [11].
3.2. Baseline Scenario
The baseline scenario in Figure 2describes different investment values under the business as usual
environment. This figure compares the NPVs for the e-jeepney (green curve) and the diesel jeepney
(yellow curve), expected net present value (ENPV) for the diesel jeepney (blue curve), considering the
volatility of diesel fuel prices, and the maximized option values (dotted black curve) for the investment
project at different initial prices of diesel. Initial results show a higher NPV for the e-jeepney, indicating
a more profitable project than the diesel jeepney. This result supports the NPV results from the previous
subsection, showing a better investment project for the e-jeepney.

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World Electric Vehicle Journal 2019, 10, x FOR PEER REVIEW 6 of 17
Table 1. Financial estimation results using traditional valuation methods.
Valuation method E-jeepney Modernized diesel jeepney
Net present value (NPV) (USD) 4.892 million 3.138 million
Payback period (PBP) (years) 4.09 3.28
Return on investment (ROI) (30 years) 373% 490%
Internal rate of return (IRR) 32.36 43.89
On the other hand, other traditional valuation methods favor investment in the diesel jeepney
fleet with shorter PBP, higher ROI, and higher IRR. The PBP estimation shows that an investment in
the modernized diesel jeepney fleet can be recovered in 3.28 years, while it is 4.09 years for the e-
jeepney fleet. Over the 30-year lifetime of jeepney operation, the diesel project returns the investment
by 5 times while it is quadruple for the e-jeepney project. These results are due to higher investment
costs for the e-jeepney, which are triple the cost for the diesel jeepney. Further, the IRRs for both
projects are also higher than the hurdle rate of 15% set by the Philippine government [25], which
implies that both projects are profitable.
While the traditional financial tools are already practical methods for PUV project valuation,
these all-or-nothing strategies, outsetting all future outcomes as fixed, pose several potential
problems. These include a constant nature of weighted average cost of capital through time,
undervaluing the investment, the estimation of economic life, which forecasts errors in creating the
future cash flows, and insufficient tests for the plausibility of the final results [26]. In a stochastic
world, there would be fluctuations in business conditions that would change the value of the project
[26]. Meanwhile, ROA can mitigate some of these problematic areas by combining risks and
uncertainties in the future cash flow, with managerial flexibility in making investment decisions that
give additional value to the project [11].
3.2. Baseline Scenario
The baseline scenario in Figure 2 describes different investment values under the business as
usual environment. This figure compares the NPVs for the e-jeepney (green curve) and the diesel
jeepney (yellow curve), expected net present value (ENPV) for the diesel jeepney (blue curve),
considering the volatility of diesel fuel prices, and the maximized option values (dotted black curve)
for the investment project at different initial prices of diesel. Initial results show a higher NPV for the
e-jeepney, indicating a more profitable project than the diesel jeepney. This result supports the NPV
results from the previous subsection, showing a better investment project for the e-jeepney.
Figure 2. Investment values at initial prices of diesel fuel. 𝑃∗ is the minimum price of diesel for the
e-jeepney project; 𝑃 =𝑈𝑆𝐷.
 is the current price of diesel. Optimization results are tabulated
in Supplementary Material Table S3.
Figure 2.
Investment values at initial prices of diesel fuel.
P∗
d
is the minimum price of diesel for the
e-jeepney project;
Pcur
d=USD 0.8992
L
is the current price of diesel. Optimization results are tabulated in
Supplementary Material Table S3.
The next point of interest is the blue curve, which describes the ENPV of the modernized jeepney
at different initial prices of diesel. The Monte Carlo simulation result shows how
EhNPVji
decreases
with stochastic prices of diesel. This result is expected as higher fuel price incurs higher cost for jeepney
operations and therefore lower profits. With the current trend in fuel prices, investment in the diesel
jeepney will no longer be feasible in the future, which will further support the country’s ambitious
aim to have a more efficient and environment-friendly transport system. The dotted black curve
illustrates the dynamics of real option values. This describes the maximized value of either investing
in the modernized diesel jeepney or in the e-jeepney, at different initial prices of diesel. The ROA
model estimates the optimal timing of investment in the e-jeepney, denoted by
P∗
d
, which is the price of
diesel that maximizes the investment in the e-jeepney. Below this threshold, the other alternative is a
better investment option. Using the decision rule described in Equation (10), the optimization results
reveal that investment in the modernized diesel jeepney is a better option if the price of fuel is below
P∗
d
=USD 0.4362/L. However, the current price of diesel is
Pcur
d=USD
0.8992
/L
, which is greater than
the estimated
P∗
d
. This suggests an optimal decision to invest in the e-jeepney project under the current
business environment. This result highlights the advantage of using ROA, as traditional valuation
methods assume a single static decision, while ROA assumes a multidimensional series of decisions
with management flexibility to adapt to changes in the business environment [26].
Figure 3illustrates the dynamics of investment values at different periods. The simulation results
show that while the investment value of the e-jeepney is constant, the expected NPV of investment
in the diesel jeepney decreases over time and obtains negative values at some periods. The
EhNPVji
curve (blue) suggests that investment in the modernized diesel jeepney is only profitable within 9 years
of the decision-making period; otherwise, future investments only obtain negative profits. The main
reason for this is the expected rising diesel fuel prices in the world market for the coming years [
27
,
28
],
resulting in increasing operations cost and lower discounted cash flow. Moreover, we can observe
that
EhNPVji
across the investment period is as stochastic as the diesel price uncertainty conditions
set in the proposed ROA model. Further, the red curve describes the opportunity loss from delaying
investment in the e-jeepney. This loss is an opportunity cost by means of the revenue that could
be earned from investing in the e-jeepney over the diesel jeepney at different investment periods.
The result in the initial investment period
T=
0 shows that, while both investments are profitable,
the operator may incur an opportunity loss of USD 3.5 million for choosing the diesel jeepney over the
e-jeepney project. At period
T=
10 and beyond, the opportunity loss reaches USD 5.07 million and
more, which is higher than the value of investment in the e-jeepney. This implies no better investment

World Electric Vehicle Journal 2019,10, 51 8 of 17
option but the e-jeepney fleet project from period
T=
10. These results support the above claim
that adopting the e-jeepney is a more optimal investment decision for the current business scenario;
otherwise, the transport operator may incur opportunity loss from postponing the investment in
the e-jeepney.
World Electric Vehicle Journal 2019, 10, x FOR PEER REVIEW 8 of 17
Figure 3. Dynamics of investment values at different periods. 𝔼𝑁𝑃𝑉 is the expected NPV of
investment in the diesel jeepney; 𝑁𝑃𝑉 is the NPV of investment in the e-jeepney; opportunity loss
is the value of delaying investment in the e-jeepney. Optimization results for the dynamics of
investment values at different periods are tabulated in Supplementary Material Table S4.
3.3. Jeepney Fare Scenario
In this scenario, we analyze the sensitivity of investment decisions with respect to changes in
jeepney fares. Currently, public transport vehicles such as buses, jeepneys, and taxis are regulated by
the LTFRB including routes, entries, and fares. As of December 2018, the base fare for traditional
jeepneys in Metro Manila and nearby regions is USD 19.63c, which covers the first 4 km of public
utility jeepney (PUJ) Routes. According to this agency, modern jeepneys that are compliant with the
Public Utility Vehicle Modernization Program (PUVMP) can charge a minimum fare of USD 21.81cs.
This scenario describes how variations in fares affect the option values and identifies the critical value
of fare reduction for the adoption of PUVMP.
Figure 4 describes the option values at different jeepney base fares. The optimization shows an
upright shift in the options curve at higher base fares. This result suggests that the government must
increase the base fares in order to attract transport operators and prospective investors to adopt the
PUV modernization program. This will have no or little effect on the demand, as passengers in the
case of the Philippines are price takers due to the limited number of PUVs. On the contrary, a
reduction of base fares shifts the option curve down left. Consequently, a fare reduction causes
considerable revenue loss for the operator [29], hence, lower profit for operators and lower expected
NPV for the project investment. Therefore, careful fare system planning for PUVs must be done to
reflect the maximization of demand, revenue, profit, and social welfare [30]. Moreover, the fare USD
13.09c curve indicates the minimum fare reduction possible. Beyond this reduction, investment in
any alternative incurs only losses, as described by the fare USD 10.91c (green curve).
Figure 3.
Dynamics of investment values at different periods.
EhNPVji
is the expected NPV of
investment in the diesel jeepney;
NPVe j
is the NPV of investment in the e-jeepney; opportunity loss is
the value of delaying investment in the e-jeepney. Optimization results for the dynamics of investment
values at different periods are tabulated in Supplementary Material Table S4.
3.3. Jeepney Fare Scenario
In this scenario, we analyze the sensitivity of investment decisions with respect to changes in
jeepney fares. Currently, public transport vehicles such as buses, jeepneys, and taxis are regulated
by the LTFRB including routes, entries, and fares. As of December 2018, the base fare for traditional
jeepneys in Metro Manila and nearby regions is USD 19.63c, which covers the first 4 km of public
utility jeepney (PUJ) Routes. According to this agency, modern jeepneys that are compliant with the
Public Utility Vehicle Modernization Program (PUVMP) can charge a minimum fare of USD 21.81cs.
This scenario describes how variations in fares affect the option values and identifies the critical value
of fare reduction for the adoption of PUVMP.
Figure 4describes the option values at different jeepney base fares. The optimization shows an
upright shift in the options curve at higher base fares. This result suggests that the government must
increase the base fares in order to attract transport operators and prospective investors to adopt the
PUV modernization program. This will have no or little effect on the demand, as passengers in the case
of the Philippines are price takers due to the limited number of PUVs. On the contrary, a reduction
of base fares shifts the option curve down left. Consequently, a fare reduction causes considerable
revenue loss for the operator [
29
], hence, lower profit for operators and lower expected NPV for the
project investment. Therefore, careful fare system planning for PUVs must be done to reflect the
maximization of demand, revenue, profit, and social welfare [
30
]. Moreover, the fare USD 13.09c curve
indicates the minimum fare reduction possible. Beyond this reduction, investment in any alternative
incurs only losses, as described by the fare USD 10.91c (green curve).

World Electric Vehicle Journal 2019,10, 51 9 of 17
World Electric Vehicle Journal 2019, 10, x FOR PEER REVIEW 9 of 17
Figure 4. Option values at different jeepney fares. Current base fare = USD 21.81c (PHP 10); USD
26.17c adds PHP 2 onto the base fare); USD 17.45c, 15.27c, 13.09c, and 10.91c reduce the current base
fare by PHP 2, PHP 3, PHP 4, and PHP 5 (USD 1 = PHP 45.85). Optimization results are tabulated in
Supplementary Material Table S5.
3.4. Electricity Price Scenario
In this scenario, we analyze the effect of changing electricity prices on the e-jeepney investment.
At present, the country has relatively higher electricity rates compared with neighboring countries in
the Asia-Pacific region. While Thailand, Malaysia, South Korea, Taiwan, and Indonesia have lower
electricity prices due to government subsidies in the form of fuel subsidies, cash grants, additional
debt, and deferred expenditures, the Philippines has higher prices due to no government subsidy,
fully cost-reflective, imported fuel-dependent, and heavy taxes across the supply chain [31,32]. By
changing the value broadly, we present how potential government actions on electricity prices affect
investment conditions in the e-jeepney. Additionally, with the increasing investments in renewable
energy sources (RES) in the country [33], we assume future reductions in electricity prices as a result
of electricity surplus from RES being fed into the grid [34–36].
Figure 5 describes the option values at different electricity prices. The shifts on the bases of the
curves show changes only for the NPV of the e-jeepney project. This result is evident as higher
electricity prices (𝑃>𝑈𝑆𝐷 22.20 𝑐/𝑘𝑊ℎ) incur higher costs for e-jeep operation, hence, lower profit
and lower NPV. On the other hand, lower electricity prices (𝑃>𝑈𝑆𝐷 22.20 𝑐/𝑘𝑊ℎ) result lower
operations costs and higher profits for the e-jeepney. Note that investment in the other alternative is
not affected by the price variability as electricity is not used in diesel jeepney operation. This result
supports previous works highlighting a higher profitability of EVs at lower electricity prices [37,38].
This suggests that the government should regulate electricity prices at or lower than the current rate
in order to make a better investment environment for e-jeepneys and realize its PUV modernization
program. It also suggests that the government should boost investments in RES, as this will not only
result in lower dependence on imported fossil fuels for energy generation and lower GHG emissions,
but also reduce local electricity prices, which eventually make e-jeepneys a more attractive
investment project.
Figure 4.
Option values at different jeepney fares. Current base fare =USD 21.81c (PHP 10); USD 26.17c
adds PHP 2 onto the base fare); USD 17.45c, 15.27c, 13.09c, and 10.91c reduce the current base fare
by PHP 2, PHP 3, PHP 4, and PHP 5 (USD 1 =PHP 45.85). Optimization results are tabulated in
Supplementary Material Table S5.
3.4. Electricity Price Scenario
In this scenario, we analyze the effect of changing electricity prices on the e-jeepney investment.
At present, the country has relatively higher electricity rates compared with neighboring countries
in the Asia-Pacific region. While Thailand, Malaysia, South Korea, Taiwan, and Indonesia have
lower electricity prices due to government subsidies in the form of fuel subsidies, cash grants,
additional debt, and deferred expenditures, the Philippines has higher prices due to no government
subsidy, fully cost-reflective, imported fuel-dependent, and heavy taxes across the supply chain [
31
,
32
].
By changing the value broadly, we present how potential government actions on electricity prices affect
investment conditions in the e-jeepney. Additionally, with the increasing investments in renewable
energy sources (RES) in the country [
33
], we assume future reductions in electricity prices as a result of
electricity surplus from RES being fed into the grid [34–36].
Figure 5describes the option values at different electricity prices. The shifts on the bases of the
curves show changes only for the NPV of the e-jeepney project. This result is evident as higher electricity
prices (
Pe>USD
22.20
c/kWh)
incur higher costs for e-jeep operation, hence, lower profit and lower
NPV. On the other hand, lower electricity prices (
Pe>USD
22.20
c/kWh)
result lower operations costs
and higher profits for the e-jeepney. Note that investment in the other alternative is not affected by the
price variability as electricity is not used in diesel jeepney operation. This result supports previous
works highlighting a higher profitability of EVs at lower electricity prices [
37
,
38
]. This suggests that
the government should regulate electricity prices at or lower than the current rate in order to make
a better investment environment for e-jeepneys and realize its PUV modernization program. It also
suggests that the government should boost investments in RES, as this will not only result in lower
dependence on imported fossil fuels for energy generation and lower GHG emissions, but also reduce
local electricity prices, which eventually make e-jeepneys a more attractive investment project.

World Electric Vehicle Journal 2019,10, 51 10 of 17
World Electric Vehicle Journal 2019, 10, x FOR PEER REVIEW 10 of 17
Figure 5. Option values at different electricity prices. Current electricity price = USD 22.20c/kWh; USD
17.45c reduces the electricity rate by PHP 2/kWh; USD 28.35c and USD 32.72c increase the electricity
rate by PHP 3/kWh and PHP 5/kWh (USD 1 = PHP 45.85). Optimization results are tabulated in
Supplementary Material Table S6.
3.5. Government Subsidy Scenario
Lastly, we describe the significance of government subsidy for the investment in the e-jeepney
project. According to the DoTr’s order on PUVMP guidelines, existing PUV operators with valid
franchises and those applying for new or developmental routes are eligible for a fixed amount of USD
1745 per unit as an equity subsidy, provided that they drop the old PUJ units and substitute them
with modernized jeepney units compliant with the Omnibus Franchising Guidelines (OFG)
requirements [6]. In this scenario, we analyze how various subsidy schemes affect investment
decisions for the adoption of the e-jeepney.
Figure 6 shows the optimization results for the option values of e-jeepney investment at various
government subsidies: the current 5% of the total value per unit, 10% subsidy, and no subsidy. The
option curves reveal no significant difference between the subsidy schemes analyzed. This result is
in contrary to a previous study on bus purchase cost subsidy in the United States, which showed a
significant impact on optimal bus type choice and its replacement age, and favoring diesel bus over
hybrid EV without subsidy [39]. However, the break-even value of government subsidy in the
previous study indicates that hybrid buses are not optimal unless the subsidy is equal to or greater
than 63% ceteris paribus, a value relatively higher than the 5% subsidy offered by the Philippine
government for the EV project analyzed in the current study. The current research result further
indicates that the government intervention of giving modest and scanty assistance for prospective e-
jeepney fleet investors makes no significant impact in the investment decision-making process. This
implication is in line with previous studies showing electric vehicles to be a good economic option
even without governmental subsidies [40,41].
Figure 5.
Option values at different electricity prices. Current electricity price =USD 22.20c/kWh; USD
17.45c reduces the electricity rate by PHP 2/kWh; USD 28.35c and USD 32.72c increase the electricity
rate by PHP 3/kWh and PHP 5/kWh (USD 1 =PHP 45.85). Optimization results are tabulated in
Supplementary Material Table S6.
3.5. Government Subsidy Scenario
Lastly, we describe the significance of government subsidy for the investment in the e-jeepney
project. According to the DoTr’s order on PUVMP guidelines, existing PUV operators with valid
franchises and those applying for new or developmental routes are eligible for a fixed amount of USD
1745 per unit as an equity subsidy, provided that they drop the old PUJ units and substitute them with
modernized jeepney units compliant with the Omnibus Franchising Guidelines (OFG) requirements [
6
].
In this scenario, we analyze how various subsidy schemes affect investment decisions for the adoption
of the e-jeepney.
Figure 6shows the optimization results for the option values of e-jeepney investment at various
government subsidies: the current 5% of the total value per unit, 10% subsidy, and no subsidy.
The option curves reveal no significant difference between the subsidy schemes analyzed. This result
is in contrary to a previous study on bus purchase cost subsidy in the United States, which showed a
significant impact on optimal bus type choice and its replacement age, and favoring diesel bus over
hybrid EV without subsidy [
39
]. However, the break-even value of government subsidy in the previous
study indicates that hybrid buses are not optimal unless the subsidy is equal to or greater than 63%
ceteris paribus, a value relatively higher than the 5% subsidy offered by the Philippine government
for the EV project analyzed in the current study. The current research result further indicates that
the government intervention of giving modest and scanty assistance for prospective e-jeepney fleet
investors makes no significant impact in the investment decision-making process. This implication is
in line with previous studies showing electric vehicles to be a good economic option even without
governmental subsidies [40,41].

World Electric Vehicle Journal 2019,10, 51 11 of 17
World Electric Vehicle Journal 2019, 10, x FOR PEER REVIEW 11 of 17
Figure 6. Option values at different government subsidies for investment in the e-jeepney. Baseline =
5% subsidy; 10% sub = 10% subsidy; no sub = removal of subsidy. Optimization results are tabulated
in Supplementary Material Table S7.
4. Discussion
In this research, we only focus on the financial side of public transport investment. In real project
valuation, there are also several factors considered that are equally important in the decision-making
process. These may include an economic impact assessment of job creation and less dependence on
imported diesel fuel; health and social impacts of providing safe and more comfortable modes of
public transportation; public perception; and environmental impacts on noise, CO2 emission, and air
pollution reductions [42–45]. The results of a previous study on alternative technologies for the
Philippine utility jeepney [46] showed that the modernization project acquires additional benefits of
USD 3076/vehicle in tax collections and USD 276/vehicle in employment income generated from the
e-jeepney, while the benefits were USD 310/vehicle and USD 303/vehicle from the EURO-4 diesel
jeepney. This study further quantifies the health and non-health benefits (USD 19,522/vehicle and
USD 4157/vehicle) for the e-jeepney, with USD 16,616/vehicle and USD 3205/vehicle for the EURO-4
diesel jeepney. The health impacts account to respiratory illnesses and premature mortality caused
by particulate matter, and NOx and SOx emissions emanating from vehicle tailpipes and from power
generation (for the e-jeepney), while non-health impacts account to corresponding visibility
reduction, soiling, and material damage [46]. As the urban air pollution in the Philippines has
considerable health implications at about 1.5% of the country’s GDP [46], the shift from combustion
engines to EVs is beneficial to health and environment, especially when the government also
transitions to greener sources of energy [45,47,48]. On the other hand, one study [46] estimated a
negative USD 1470/vehicle of GHG savings from the e-jeepney, while it was positive USD 928/vehicle
for the EURO-4 diesel jeepney. This implies that the shift to electric jeepneys will not provide GHG
benefits under the current energy environment, as the baseline grid mix in the country is dominated
by coal (75% of total energy generation) [11], which increases the grid GHG emission factor. In terms
of public perception, market research on the future of EVs in Southeast Asia revealed that 46% of
Filipinos expressed interest in owning an e-vehicle (e-jeepney or e-tricycle), while more commuters
preferred to ride EVs than the conventional transportation in areas where EVs are available [49]. The
study stated that the figure increased to 75 percent if the government gives incentives to EV buyers
including waived taxes, more charging infrastructure, priority lanes for EVs during car registration,
and free parking [49]. The study further reiterated the support from local government units in the
deployment of EV units, while more cooperatives and operators are becoming involved by replacing
their old units and obtaining new franchises with the help of the DoTr [49]. While the public
Figure 6.
Option values at different government subsidies for investment in the e-jeepney. Baseline =5%
subsidy; 10% sub =10% subsidy; no sub =removal of subsidy. Optimization results are tabulated in
Supplementary Material Table S7.
4. Discussion
In this research, we only focus on the financial side of public transport investment. In real project
valuation, there are also several factors considered that are equally important in the decision-making
process. These may include an economic impact assessment of job creation and less dependence on
imported diesel fuel; health and social impacts of providing safe and more comfortable modes of
public transportation; public perception; and environmental impacts on noise, CO
2
emission, and
air pollution reductions [
42
–
45
]. The results of a previous study on alternative technologies for the
Philippine utility jeepney [
46
] showed that the modernization project acquires additional benefits
of USD 3076/vehicle in tax collections and USD 276/vehicle in employment income generated from
the e-jeepney, while the benefits were USD 310/vehicle and USD 303/vehicle from the EURO-4 diesel
jeepney. This study further quantifies the health and non-health benefits (USD 19,522/vehicle and
USD 4157/vehicle) for the e-jeepney, with USD 16,616/vehicle and USD 3205/vehicle for the EURO-4
diesel jeepney. The health impacts account to respiratory illnesses and premature mortality caused by
particulate matter, and NOx and SOx emissions emanating from vehicle tailpipes and from power
generation (for the e-jeepney), while non-health impacts account to corresponding visibility reduction,
soiling, and material damage [
46
]. As the urban air pollution in the Philippines has considerable
health implications at about 1.5% of the country’s GDP [
46
], the shift from combustion engines to
EVs is beneficial to health and environment, especially when the government also transitions to
greener sources of energy [
45
,
47
,
48
]. On the other hand, one study [
46
] estimated a negative USD
1470/vehicle of GHG savings from the e-jeepney, while it was positive USD 928/vehicle for the EURO-4
diesel jeepney. This implies that the shift to electric jeepneys will not provide GHG benefits under
the current energy environment, as the baseline grid mix in the country is dominated by coal (75%
of total energy generation) [
11
], which increases the grid GHG emission factor. In terms of public
perception, market research on the future of EVs in Southeast Asia revealed that 46% of Filipinos
expressed interest in owning an e-vehicle (e-jeepney or e-tricycle), while more commuters preferred
to ride EVs than the conventional transportation in areas where EVs are available [
49
]. The study
stated that the figure increased to 75 percent if the government gives incentives to EV buyers including
waived taxes, more charging infrastructure, priority lanes for EVs during car registration, and free
parking [
49
]. The study further reiterated the support from local government units in the deployment

World Electric Vehicle Journal 2019,10, 51 12 of 17
of EV units, while more cooperatives and operators are becoming involved by replacing their old units
and obtaining new franchises with the help of the DoTr [
49
]. While the public perception of EVs is
relatively low in other countries due to concerns about high battery costs, safety, reliability, range
per charge, and poor public charging infrastructures [
50
,
51
], Filipinos’ environmental awareness is
now increasing with the adoption of more sustainable modes of public transport. While the GHG
savings and the traditional valuation methods favor modernized jeepneys with shorter PBP, higher
ROI, and higher IRR; other analyses including economic impacts on employment and additional tax
collection, health and non-health impacts, and public perception favor the e-jeepney project, which
further complements our analysis using the proposed ROA model.
In the jeepney fare scenario, we analyze how the changing base fare affects investment decisions
for the PUV project. We assume that the USD 2.18c (PHP 1) fare difference between modern and
traditional jeepneys has no or little effect on the demand, as passengers in the case of the Philippines
are price takers due to the limited number of PUVs. In the medium to long-run, this assumption is true
as traditional jeepneys will be phased out in 10 to 15 years [
6
]; hence, there will be a uniform price for
all types of jeepney. It should be noted that in the short-run, fare differences may affect the demand as
consumers may prefer traditional jeepneys with lower fares. In this case, future studies may include
the cross-price elasticity of demand, which reflects the substitution pattern between the traditional and
modernized jeepneys [
52
]. Moreover, cross-price elasticity may also include the availability of charging
stations; charging prices of the stations; and PUV substitutes such as hybrid, hydrogen-fueled, and
other modes of public transportation [53,54].
The context of the decision-making analyses in this study focuses on the transport operator who
will adopt PUVMP with the e-jeepney; hence, we assume that charging stations for e-jeepneys are
located at company and public terminals. We recognize that our results can further be influenced
by a supporting project from the government to establish charging infrastructures, which can be
placed in strategic places. This can be planned by utilizing PUV recharging information like frequency,
amount and time to estimate the distances between the stations [
55
,
56
]. However, this is in contrast
with a study which suggests that the charging of electric PUVs should be coordinated to minimize
potential energy losses and maximize the main grid load factor [
57
]. Using the same recharging
information, operators can manage the charging schedule of the units in their respective terminals.
While individual charging may not affect the distributions systems, simultaneous charging of an entire
fleet may incur potential problems in old transformers and excessive voltage drops [
58
]. Moreover,
for the last 10 years, there was an average of 11% annual increase in the production of electricity
using coal [
59
]. This indicates that there was an observable increase in the demand for electricity even
before the dawn of charging e-jeepneys. It should be noted that emissions from burning fossil fuels
like coal release GHGs, which affect the environment. While we are sure that the GHG emissions of
the e-jeepney are Euro-4 compliant, the production of electricity that powers these vehicles is not.
Therefore, the government should increase its efforts to develop infrastructures that generate electricity
from RES.
This study compares the economic attractiveness of investment in the e-jeepney and the modernized
diesel jeepney. Future studies may also consider other environment-friendly alternatives such as
biofuel vehicles, hydrogen-fueled vehicles, and hybrid vehicles. While this study analyzes the case of
PUV investment in the Philippines, future studies may consider applying the proposed model for PUV
projects in developing countries such as electric tricycles, electric tuk-tuks, e-scooters, electric water
taxis, and other sustainable modes of public transportation that fit with the local setting.
Finally, this study analyzes an investment setting with stochastic diesel fuel prices, while assuming
all other variables are constant through time. We acknowledge other uncertainties that affect investment
decisions, particularly for public transport, including the prices of electricity, jeepney fares, operation
and maintenance costs, demand for more environment-friendly PUVs, technological innovations,
investment costs, and other relevant variables. These uncertainties can also be incorporated in the
model to better capture a more realistic investment setting relevant to market and climate change

World Electric Vehicle Journal 2019,10, 51 13 of 17
policy. Despite these limitations, we believe that the ROA framework proposed in this study could be
a good benchmark for further analysis of investment decisions for cleaner and more sustainable modes
of public transportation.
5. Conclusions
This study discusses an investment case for adopting the modernized diesel jeepney or the
e-jeepney in the Philippines. We apply the real options approach under uncertainty in diesel fuel prices
to evaluate the option values and optimal investment strategies in PUV projects. We characterize
various scenarios where the e-jeepney is a more favorable investment than the modernized diesel
jeepney and analyze how sensitivity to electricity prices, jeepney fares, and government subsidy in
the e-jeepney affect the investment decisions for PUVs. We also compare the decision usefulness of
the proposed ROA model over the traditional financial tools for analyzing PUV investment projects.
Our analysis highlights the advantages of ROA by combining risks, uncertainties, and managerial
flexibility in making investment decisions.
Our analyses conclude that there is a better investment opportunity for the e-jeepney over the
diesel jeepney. Results are robust with all scenarios investigated. Results also show a more optimal
decision strategy to invest immediately under the current business environment, as delaying or
postponing investment may incur opportunity losses. While environmental impacts and traditional
financial tools such as PBP, ROI, and IRR favor the modernized jeepney project, other investment
analyses including public perception, health and non-health benefits, and economic impacts on tax
and employment favor the e-jeepney project, which complements the result of our analysis using the
proposed ROA. To make the adoption of the e-jeepney more attractive, this study further suggests
government actions to increase the amount of subsidy with flexible payment terms; increase jeepney
base fares for quick and higher ROI; establish charging infrastructures optimally located in strategic
places while considering the driver’s spontaneous adjustments, and the interactions of travel and
charging decisions; and continue efforts to rely on cleaner, cheaper, and renewable sources of electricity.
Supplementary Materials:
The supplementary material is available online at http://www.mdpi.com/2032-6653/
10/3/51/s1.
Author Contributions:
Conceptualization, C.B.A., C.S.G., Re.O.V. and Ri.O.V.; Data curation, C.S.G. and Re.O.V.;
Formal analysis, C.B.A.; Investigation, Re.O.V.; Methodology, C.B.A.; Project administration, C.S.G.; Software,
C.B.A.; Supervision, C.B.A.; Validation, C.S.G., Re.O.V. and Ri.O.V.; Writing—original draft, C.B.A., C.S.G., Re.O.V.
and Ri.O.V.; Writing—review & editing, Ri.O.V.
Funding: This research received no external funding.
Acknowledgments:
The authors acknowledge Utrecht University, the Philippines’ Department of Energy (DoE),
Department of Transport (DoTr), and the Land Transportation Franchising and Regulatory Board (LTFRB).
Conflicts of Interest: The authors declare no conflict of interest.
Nomenclature
Acronyms Description
ADF Augmented Dickey–Fuller
CBA Cost-Benefit Analysis
DOE Department of Energy
DoTr Department of Transportation
EV Electric Vehicles
IRR Internal Rate of Return
GBM Geometric Brownian Motion
GHG Greenhouse Gasses
GPS Global Positioning System
HV Hybrid Vehicle
IRR Internal Rate of Return
LTFRB Land Transportation Franchising and Regulatory Board

World Electric Vehicle Journal 2019,10, 51 14 of 17
MACE Manila Aerosol Characterization Experiment
NPV Net Present Value
OFG Omnibus Franchising Guidelines
PBP Payback Period
PUJ Public Utility Jeepney
PUV Public Utility Vehicle
PHP Philippine Peso
PUVMP Public Utility Vehicle Modernization Program
RES Renewable Energy Sources
ROA Real Options Approach
ROI Return on Investment
Symbols Description Unit
αgradient of diesel prices
σstandard deviation of diesel prices
ρdiscount factor
Pej average annual earnings from e-jeepney PHP/yr
Qej number of e-jeepney units per fleet; minimum set by the government unit
Peprice electricity PHP/kWh
Qeaverage annual electricity consumed by the fleet kWh
Cej average annual operations and maintenance cost for e-jeepney PHP/yr
sgovernment subsidy for e-jeepney fleet PHP
Iannual amortization for e-jeepney fleet PHP/yr
Tej effective lifetime of e-jeepney Yr
ENPV Expected Net Present Value PHP
NPVej net present value of e-jeepney fleet project PHP
Pjaverage annual earnings from diesel jeepney PHP/yr
Qjnumber of diesel jeepney units per fleet unit
Qdaverage annual fuel consumption of diesel jeepney fleet L/yr
Cjaverage annual operations and maintenance cost for diesel jeepney PHP/yr
Ijaverage investment cost for diesel jeepney PHP
Tjeffective lifetime of diesel jeepney Yr
TDecision-making period
Pd,0 initial diesel price PHP/L
Pcur
dcurrent price of diesel PHP/L
NPVjnet present value of diesel jeepney fleet project PHP
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