Solar Grid Parity Dynamics in Italy: A Real Option Approach

Over the past three years Italy has witnessed a rapid growth in the photovoltaic energy market, followed by an equally sudden decline when the government decided to reduce the incentives. This sharp change in the trend of the market calls into question the achievement of Grid Parity and the possibility that the market is able to develop independently. Starting from the standard Grid Parity Model, widely used for the photovoltaic (PV) market, we internalize the uncertainty surrounding both the energy price and PV module costs, to forecast the dynamics of the Italian PV market. We show that these sources of uncertainty can delay the Grid Parity timing of several years compared to current forecasts, well describing the current market situation.