The Role of Solar Market Mechanisms in Distributed Panel Investment

Mehdi Davoudi, Junjie Qin, Xiaojun Lin

Abstract: This paper studies the long-term distributed solar panel investment equilibrium driven by the solar panels investors' expected payoffs derived from participating in different short-term solar energy markets. To this end, we consider three different short-term solar market mechanisms, namely, (a) single-product real-time energy market, (b) product-differentiated real-time energy market, and (c) contract-based panel market. We derive expressions for the equilibrium price and expected return of solar panel investors under all these three markets. We then connect these short-term market equilibria with the long-term panel investment game where individual investors determine whether to invest in solar panels by trading off the capacity cost with the expected payoff from the panel investment. Interestingly, we establish that the single-product real-time energy market consistently leads to under-investment compared to product-differentiated real-time energy market, where the latter is shown to support social welfare. We also prove that the contract-based market leads to over-investment in a limiting parameter region where the extra valuations of users are small.