Photovoltaic Smart Grids in the Prosumers Investment Decisions: A Real Option Model

37 Pages Posted: 23 Jan 2020

See all articles by Marta Castellini

Marta Castellini

University of Brescia - Department of Economics and Management

Francesco Menoncin

University of Brescia

Michele Moretto

University of Padua, Dep of Economics and Management

Sergio Vergalli

University of Brescia - Department of Economics; Fondazione Eni Enrico Mattei (FEEM), Milan

Date Written: December 19, 2019

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 Smart Grid. 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 Smart Grid, 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.

Keywords: Smart Grids, Renewable Energy Sources, Real Options, Prosumer, Peer to Peer Energy Trading

JEL Classification: Q42, C61, D81

Suggested Citation

Castellini, Marta and Menoncin, Francesco and Moretto, Michele and Vergalli, Sergio, Photovoltaic Smart Grids in the Prosumers Investment Decisions: A Real Option Model (December 19, 2019). FEEM Working Paper No. 28.2019, Available at SSRN: https://ssrn.com/abstract=3522990 or http://dx.doi.org/10.2139/ssrn.3522990

Marta Castellini

University of Brescia - Department of Economics and Management ( email )

Contrada Santa Chiara, 50
BRESCIA, BS 25122
Italy

Francesco Menoncin

University of Brescia

Piazza del Mercato, 15
25122 Brescia
Italy

Michele Moretto

University of Padua, Dep of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 8274265 (Phone)
+39 049 8274211 (Fax)

Sergio Vergalli (Contact Author)

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy

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