This paper deals with the economic analysis of solar photovoltaic home systems for off-grid application in the Philippines. Solar homes systems financing is one of several components of the proposed Philippines Rural Project. A detailed reconciliation of economic and financial flows is provided, which indicates the basis for an assessment of the rationale for, and impact of, alternative levels of subsidy. The conventional switching value sensitivity analysis is augmented by a probabilistic risk assessment using Monte Carlo simulation. Risk factors assessed include shorter than expected system lives, capital costs, market penetration, kerosene prices, and uncertainty in the demand curve parameters. Additional benefits from carbon reduction further enhance the economic rate of return. A range of further environmental benefits - such as the reduction of burn injuries and deaths from kerosene lamps, and indoor air pollution benefits are noted, though not quantified. The paper concludes that solar home systems provide high economic returns for areas with low load density for which grid extension is uneconomic, with very small risk of hurdle rates not being achieved.
