Dynamic (Mis)allocation of Investments in Solar Energy

Nicolas Astier () and Nicolas Hatem
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Nicolas Astier: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Nicolas Hatem: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, ENGIE

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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: 2025-07
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Published in Journal of the Association of Environmental and Resource Economists, 2025, 12 (4), pp.911-941. ⟨10.1086/732356⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-05144142

DOI: 10.1086/732356

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