Economic analysis of a residential PV system from the timing perspective: A real option model

Yongma Moon, Mesut Baran

Research output: Contribution to journalArticlepeer-review

34 Scopus citations


This paper proposes a new model for determining optimal investment time for residential photovoltaic (PV) power systems. The model explicitly incorporates the cost uncertainty of the PV system and a resident's option to defer investment, using a real option model. The paper provides theoretical analysis as well as case studies. Using the real option model, we show that the optimal investment threshold decreases in case of volatility increase, mean-drift decrease and benefit decrease. A sensitivity analysis using different PV sizes illustrates that the optimal waiting time for substantial PV diffusion to smaller PV systems is longer than that of larger systems. The paper also investigates the expected investment times in the United States, Germany, Japan, and Korea and shows that all countries except Germany need to wait to invest. Moreover, a comparison study to the net present value (NPV) method demonstrates that PV system investment can be additionally delayed by 5.76–11.01 years.

Original languageEnglish
Pages (from-to)783-795
Number of pages13
JournalRenewable Energy
StatePublished - Sep 2018


  • Photovoltaic power
  • Real option
  • Resident
  • Uncertainty


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