Do Smart Grids boost investment in photovoltaics? The prosumer investment decision. Marco Fanno Working Paper No.203-2015.
In Italy and in many EU countries, the last decade was characterized by a large development of distributed generation power plants. Their presence determined new critical issues for the design and management of the overall energy system and the electric grid due to the presence of discontinuous production sources. It is commonly agreed that contingent problems that a⁄ect local grids (e.g. ine¢ ciency, congestion rents, power outages, etc.) may be solved by the implementation of a smart electric grid. The main feature of smarts grid is the great increase in production and consumption exibility. Smart grids give producers and consumers, the opportunity to be active in the market and strategically decide their optimal production/consumption scheme. The paper provides a theoretical framework to model the prosumers decision to invest in a photovoltaic power plant, assuming it is integrated in a smart grid. To capture the value of managerial exibility, a real option approach is implemented. We calibrate and test the model by using data from the Italian energy market.