The Effects of Smart Grids Innovation on Real Estate Market Values

The aim of the paper is to investigate whether Smart Grids innovation can increase market values due to higher production and consumption flexibility. Smart Grids give de facto producers and consumers, the opportunity to be active in the energy market and strategically decide their optimal production/consumption pattern. In this paper we provide a model based on the real option theory to determine the value of this flexibility and the related market value increase. We model the homeowner decision to invest in a PV plant and connect to a Smart Grid by comparison to the decision to invest in a solar home not connected to a smart grid. We determine the property potential market value increase due to the opportunity to perform active energy management given by smart grids and we compare this value increase to the PV plant value per se. To capture the value of managerial flexibility we implement a real option approach. The greater the flexibility the greater the property market value