Pricing Flexibility in Solar Ready Homes
Date
2011-11-17Author
Ashuri, Baabak
Irizarry, Javier
Riether, Gernot
Metadata
Show full item recordAbstract
Solar energy technologies, i.e., Photovoltaic (PV) panels, have promising features for
renewable energy generation (i.e., energy savings) and greenhouse gas (GHG) emission
reduction in the housing sector. Nevertheless, adopting these PV technologies requires
substantial initial investments. The market for these technologies is often vibrant from the
technological and economic standpoints. Therefore, investors typically find it more attractive
to delay investment in PV technologies. Alternatively "Solar Ready Homes" are
proposed. These flexible homes can easily adopt PV technologies later in future when the
price of PV panels is lower, electricity energy price is higher, and stricter environmental
regulations are in place. The investors need proper financial valuation models in order to
avoid over- and under-investment in solar technologies. We apply Real Options Theory to
evaluate investments in Solar Ready Homes. Our proposed investment analysis framework
uses a probability distribution model to empirically characterize uncertainty about the
performance of PV panels. Uncertainty about future retail price of energy is characterized
with a stochastic model. Our framework uses the experience curve to model changes in
price and efficiency of PV technologies over time. Our investment valuation model identifies
the optimal time to install PV panels in Solar Ready Homes. Our valuation model
characterizes the investor's financial risk profile in two investments: "fixed" Solar
Home and "flexible" Solar Ready Home. The optimal time for installing PV panels in
solar ready home is identified. Our framework determines the price of flexibility embedded
in solar ready home. In other words, it calculates the difference between the expected value
of investment in solar ready home and the expected value of investment in solar home. (Ashuri) LICHTRAUM is a self-supporting exterior solar screen that is designed to maximize visual
comfort for the work environment. Reflecting a maximum amount of daylight into the space, minimizing direct solar exposure and providing views the screen can distribute and concentrate light where it is needed. (Riether)