Option value, investment costs and deployment levels of smart grid technologies

Abstract

The global effort to mitigate the effects of climate change has triggered the need for significant changes in electricity grids, including the deployment of smart grid technologies. This paper explores key smart grid economics such as the investment cost of smart technologies, their level of deployment in the grid, as well as their option value. An extensive sensitivity analysis carried out using a stochastic optimization model studies how the investment cost affects the level of deployment of smart grid technologies and their option value. The analysis focuses on smart technologies, including the soft open point, smart charging of electric vehicles, dynamic line rating, energy storage, and soft open point. The results demonstrate an inverse relationship between the option value of smart technologies, the investment cost as well as the extent of conventional network reinforcement, underscoring the trade-offs in economic decision-making for energy systems.