Valuing Strategic Flexibility in ASEAN Electricity Market Integration: Real Options Evidence from the Indonesia-Singapore Interconnection

“Cross-border electricity interconnection is increasingly recognized as a cornerstone of ASEAN’s energy transition, enabling renewable energy trade, enhancing system flexibility, and strengthening regional energy security [1]. The Indonesia–Singapore electricity interconnection represents a flagship initiative within ASEAN power market integration, driven by Singapore’s growing demand for low-carbon electricity and Indonesia’s abundant renewable energy potential. Despite its strategic importance, the project is highly capital-intensive and exposed to significant uncertainties related to regulation, demand growth, electricity prices, technology costs, and cross-border governance. These characteristics pose major challenges for conventional investment appraisal methods, which tend to undervalue long-lived energy infrastructure under uncertainty [2].

This study addresses these limitations by applying a Real Options Valuation (ROV) framework to assess the economic feasibility of the Indonesia–Singapore electricity interconnection within the broader ASEAN electricity market. Conventional Discounted Cash Flow (DCF) analysis, while widely used, fails to capture managerial flexibility under uncertainty and therefore provides an incomplete representation of project value. A growing body of empirical evidence from Indonesia demonstrates that ROV offers a more robust valuation framework by explicitly valuing strategic options such as investment deferral, expansion, and technology choice under volatile market and policy conditions [3, 4, 5, 6] (Mun, 2006; Hakam & Saraswani, 2025; Gustino et al., 2025; Giriarso & Hakam, 2025).

Methodologically, the research adopts a two-stage valuation approach integrating DCF and ROV. In the first stage, a baseline DCF model is developed to estimate the project’s static Net Present Value (NPV) based on expected cash flows from cross-border electricity trade. In the second stage, the analysis extends the DCF framework by incorporating real options to derive an Expanded Net Present Value (ENPV). Key uncertainties including electricity prices, traded volumes, capital costs, and regulatory conditions are modeled using Monte Carlo simulation, while option values are estimated through a binomial lattice approach under a risk-neutral valuation framework [2, 3].

The study aims to quantify the value of strategic flexibility embedded in cross-border electricity interconnection projects and to assess how uncertainty can generate option value that supports staged investment, adaptive capacity expansion, and improved timing of capital deployment. By comparing valuation outcomes under DCF and ROV, the research is expected to demonstrate that incorporating real options significantly enhances project valuation, consistent with prior empirical findings in energy and infrastructure investments in Indonesia [7, 8].

Beyond its methodological contribution, the study generates policy-relevant insights for ASEAN electricity market integration. The findings will inform the design of investment frameworks, risk-sharing mechanisms, and regulatory coordination to support the ASEAN Power Grid and regional low-carbon electricity trade. Key outputs including a Q1 journal article, an ASEAN-focused policy brief, and a final technical report are intended to support evidence-based decision-making on climate finance, de-risking strategies, and market design, thereby strengthening the credibility and scalability of cross-border electricity interconnection in ASEAN [1, 9, 10].”