Assessment of residential renewable energy investment under dynamic market environment: Aspect from household benefits

Abstract

The adoption of residential renewable energy is pivotal for achieving the 'Net Zero' goal, yet financial assessments of household investments in this area remain complex due to dynamic market conditions. This study introduces a novel closed-form financial valuation framework for residential solar photovoltaic (PV) systems, explicitly addressing the uncertainties of electricity market price fluctuations (market risk) and energy policy changes (policy risk) using Geometric Brownian Motion (GBM). A case study in France demonstrates the framework's application, revealing that the discount rate is the most influential factor in solar PV valuation, followed by system lifespan and policy-driven Feed-in Tariff (FiT) rates. Sensitivity analyses further highlight how these variables interact to influence investment outcomes under various market scenarios. Key findings include (1) the identification of critical thresholds for solar PV investments, ensuring financial viability even under fluctuating conditions; (2) the validation of GBM as an effective tool for capturing long-term market and policy dynamics; and (3) actionable policy recommendations emphasizing market efficiency, policy stability, and end-of-life management. These insights contribute to advancing both household investment decision-making and policy design, addressing a significant gap in understanding the economic dynamics of residential renewable energy adoption. By bridging theoretical valuation models with empirical evidence, this research provides practical guidance for promoting decentralized renewable energy systems globally.