Market-Driven Equilibria for Distributed Photovoltaic Panel Investment

Mehdi Davoudi, Junjie Qin and Xiaojun Lin

Papers from arXiv.org

Abstract: This study investigates long-term investment in distributed photovoltaic panels by individual investors. We consider a setting where investment decisions are driven by expected revenue from participating in short-term electricity markets over the panel lifespan. These revenues depend on short-term market equilibria, including prices and allocations, which are endogenously influenced by the aggregate installed panel capacity. We model interactions among investors as a non-atomic game and develop a framework that links short-term market equilibria to the resulting long-term investment equilibrium. Within this framework, we analyze three market mechanisms: (a) a single-product real-time energy market, (b) a product-differentiated real-time energy market that treats solar energy and grid energy as different products, and (c) a contract-based panel market that trades rights to future production from panel capacity ex ante, rather than realized solar production ex post. For each mechanism, we derive short-term equilibrium outcomes and associated expected revenues, and analytically characterize the corresponding long-term Nash equilibrium capacity. We compare these investment equilibria with a benchmark social optimum and establish that, in the baseline risk-neutral setting, the product-differentiated market attains this benchmark, while the single-product market induces lower investment. We also show that the contract-based market can lead to over-investment when users' additional valuations for solar energy are small. We further study extensions incorporating time-varying operating conditions and investor risk aversion, showing how these considerations affect expected revenues and investment incentives while broadly preserving key insights from the baseline analysis. Finally, we evaluate our theoretical findings through a numerical case study.

Date: 2025-09, Revised 2026-09
New Economics Papers: this item is included in nep-ene, nep-gth and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2509.07203 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2509.07203

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().