TY  - GEN
AB  - We consider a price-maker company which generates electricity and sells it in
the spot market. The company can increase its level of installed power by irreversible installations
of solar panels. In absence of the company's economic activities, the spot electricity
price evolves as an Ornstein-Uhlenbeck process, and therefore it has a mean-reverting behavior.
The current level of the company's installed power has a permanent impact on the
electricity price and affects its mean-reversion level. The company aims at maximizing the
total expected profits from selling electricity in the market, net of the total expected proportional
costs of installation. This problem is modeled as a *two-dimensional degenerate singular
stochastic control problem* in which the installation strategy is identified as the company's
control variable. We follow a *guess-and-verify approach* to solve the problem. We find that
the optimal installation strategy is triggered by a curve which separates the *waiting region*,
where it is not optimal to install additional panels, and the *installation region*, where it is.
Such a curve depends on the current level of the company's installed power, and is the unique
strictly increasing function which solves a first-order ordinary differential equation (ODE).
Finally, our study is complemented by a numerical analysis of the dependency of the optimal
installation strategy on the model's parameters.
DA  - 2019
KW  - singular stochastic control
KW  - irreversible investment
KW  - variational inequality
KW  - Ornstein-Uhlenbeck process
KW  - market impact
LA  - eng
PY  - 2019
SN  - 0931-6558
SP  - 29-
TI  - Optimal Installation of Solar Panels with Price Impact: a Solvable Singular Stochastic Control Problem
UR  - https://nbn-resolving.org/urn:nbn:de:0070-pub-29388119
Y2  - 2024-11-22T13:39:54
ER  -