Dynamic (Mis)allocation of Investments in Solar Energy

Nicolas Astier and Nicolas Hatem

Journal of the Association of Environmental and Resource Economists, 2025, vol. 12, issue 4, 911 - 941

Abstract: Because they differ in terms of technology, size, and location, solar photovoltaic installations exhibit very heterogeneous levelized costs of producing electricity. Therefore, the present value cost of meeting a given trajectory of annual solar energy production depends on which projects are commissioned when: the observed sequence of investment decisions need not be cost-efficient. We propose a methodology to assess the magnitude of dynamic misallocation by comparing the present value cost of realized investments to a counterfactual optimal sequence of investments. Applying our methodology to France between 2005 and 2021, we find that the observed trajectory of annual solar output could have been produced at a present value cost about 30% lower than its realized value. Our optimized counterfactual suggests that investments in residential solar should have on average been postponed by seven years, while investments in medium- and large-scale installations should have occurred three to four years earlier.

Date: 2025
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