Abstract
The purpose of this paper is to assess the optimal choice of an investor, a typical household in California, United States, in terms of whether to invest or not, in a residential scale, grid-connected, solar photovoltaic system, aiming to obtain savings in their monthly electric expenses. If they invest, they shoulder a fixed upfront cost but also accept uncertain potential savings. If they do not invest, they forego any potential savings. To assess this irreversible decision, Real Options Analysis is deployed to assess the actual benefit for the household. This approach allows us to determine whether to trigger the investments and the optimal timing to do so. Our findings show it is optimal for our investor to invest in photovoltaics; however, some delay might be advised depending on the energy production factor of specific geographical areas and the expected useful life of the equipment. The results of this study also show that it might be optimal to delay the investment between 5.5 and 12 years in some areas, which is a drawback. Our findings also show that subsidies and other incentives do not seem to be a key driver in the above-mentioned investment decision. This study contributes to the existing literature by examining the present dynamic of residential grid-connected photovoltaic systems in the most relevant market for the United States and by including an assessment of uncertainty in both electric rates and photovoltaics prices, that accounts for seasonality, price escalation and price manipulation.
Vargas, Carlos