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When Should the Off-grid Sun Shine at Night? Optimum Renewable Generation and Energy Storage Investments
Christian Kaps, Simone Marinesi, Serguei Netessine
Management Science, 2023
Abstract
Globally, 1.5 billion people live off the grid, their only access to electricity often limited to operationally-expensive fossil fuel generators. A combination of solar generation and storage holds the promise of cheaper, greener, and more reliable off-grid power. We develop a model of strategic capacity investment in both renewable generation and storage to match demand with supply in off-grid use-cases, while relying on fossil fuel as backup. We develop two newsvendor-like approximations that are analytically tractable. We find that solar generation and storage capacity levels are strategic complements, except in cases with very high penetration of either technology, when they surprisingly turn into strategic substitutes. Second, we develop a simple heuristic to determine which technology, within a given portfolio, can turn a profit in the broadest set of market conditions. We calibrate our models using real-life data from three geographically-diverse islands.