Timing residential photovoltaic investments in the presence of demand uncertainties

As investment in residential photovoltaic systems is increasing at a rapid pace, it is important to investigate whether delaying or otherwise timing these investments can maximize long term investment gains. Conventional financial analysis methods for evaluating investment decisions in solar-electric system are all based on a one-time installation of the PV systems and cannot be applied to analyze the benefit of delayed and staged investment. Such benefits could be declining costs of PV systems thus tempting investors to hold off and wait for a better moment to invest. This paper proposes a decision making framework using the real option method to analyze the optimum time to invest in a residential PV system in different scenarios. A reference residential house is used to test the effect of different investment strategies. The results show the type of staged investment of installing residential PV system that maximizes the long-term payoff. This reveals when the option to delay investment is preferred. The supporting source code and data are available for download at https://github.com/reisiga2/SolarPanelInvestment.