CAPEX vs FLEX: The optimal investment mix to integrate decentralized electricity production

Voahary Andriamaromanana, Axel Gautier and Jean-Christophe Poudou
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Voahary Andriamaromanana: HEC Liège
Axel Gautier: HEC Liège

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Abstract: Decentralized production increases grid congestion, forcing solar panels to disconnect to prevent over-voltage, a negative externality linked to installed capacity that limits system penetration. Key solutions include network reinforcement (Capex), and investing in flexibility resources (Flex) to boost self-consumption. Using an agent-based model with prosumers, a retailer, and a DSO, we study the trade-off between Capex and Flex by linking a disconnection probability to these investments. Our results indicate that, due to the externality, market outcomes feature excessive Capex and insufficient Flex compared to the optimal mix. While tariff adjustments and Flex subsidies can help, challenges remain because of information asymmetry and heterogeneity.

Date: 2026-03
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Published in Energy Economics, 2026, pp.109316. ⟨10.1016/j.eneco.2026.109316⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05572241

DOI: 10.1016/j.eneco.2026.109316

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