Assessment of demand response value in photovoltaic systems based on real options theory

In the last decades, growing environmental concerns have driven investments in electricity generation projects based on Renewable Energy Sources (RESs) such as Photovoltaic (PV) systems. Off-grid PV systems tend to rely on generation side management measures such as back up generation or storage to provide a supply with an adequate level of reliability. Alternatively, demand-side measures such as Demand Response (DR) programs can be an economically attractive option. The implementation of DR programs can reduce the design requirements of off-grid PV systems, and thus reduce costs. These savings are the value of DR perceived by the owners of the PV systems, which represent the maximum amount of capital they would be willing to invest in the implementation of DR programs. This paper proposes a methodology based on Real Options (ROs) theory for the design and assessment of off-grid PV systems, considering the possible implementation of DR pro grams. The methodology includes problem-solving techniques to optimise the design of off-grid PV systems and ROs based techniques for the valuation of DR programs under uncertainty. The methodology is illustrated with a United Kingdom (UK) based case study. The results show some of the benefits off-grid PV systems can obtain due to the implementation of different types of DR programs, and the effects of underlying assumptions on the expected value of DR programs.