Pricing Flexibility in Solar Ready Homes

Abstract

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)