Photovoltaic Smart Grids in the prosumers investment decisions: a real option model

Marta Castellini, Francesco Menoncin, Michele Moretto and Sergio Vergalli

Journal of Economic Dynamics and Control, 2021, vol. 126, issue C

Abstract: The digitization of power system represents one of the main instruments to achieve the target set by the European Union 2030 climate and energy Agenda of affordable energy transition. During the last years, such innovation process has been associated with the Smart Grid (SG) term. In this context, efficiency and flexibility of power systems are expected to increase and energy consumers to be active also on the production side, thus becoming prosumers (agents that both produce and consume energy). This paper provides a theoretical real option framework with the aim to model prosumers’ decision to invest in photovoltaic power plants, assuming that they are integrated in a SG. Our main focus is to study the optimal plant size and the optimal investment threshold, in a context where exchange of energy among prosumers is possible. The model was calibrated and tested with data from the Northern Italy energy market. Our findings show that the possibility of selling energy between prosumers, via the SG, increases investment values. This opportunity encourages prosumers to invest in a larger plant compared with the case without exchange possibility and that there is a positive relation between optimal size and (optimal) investment timing. The effect of uncertainty is in line with the literature, showing increasing value to defer with volatility. Our comparative statics stress the need for policies to push the PV efficiency.

Keywords: Smart Grids; Renewable energy; Real options; Prosumer; Peer to peer energy trading (search for similar items in EconPapers)
JEL-codes: C61 D81 Q42 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Photovoltaic Smart Grids in the Prosumers Investment Decisions: a Real Option Model (2020)
Working Paper: Photovoltaic Smart Grids in the Prosumers Investment Decisions: a Real Option Model (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:126:y:2021:i:c:s0165188920301561

DOI: 10.1016/j.jedc.2020.103988

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