Development of an innovation diffusion model for renewable energy deployment

Abstract

Investment in renewable energy, such as building photovoltaic (PV), has higher volatility than normal products due to uncertain product performance and such high uncertainties become the roadblock to the growth of renewable energy market. Previous studies focus on diffusion of innovation from macro aspect but ignore the managerial flexibility of individual's investment. This paper established a novel diffusion model that integrates agent-based modelling (ABM), real option and social networks to assess the propagation of renewable energy adoption. The proposed model incorporates the heterogeneity of individuals' risk preferences into real option decision to determine one's willingness to invest renewable energy. The perceptual risks vary through one's interaction with network peers after knowing the past experiences from those peers. The model is then applied to the residential PV diffusion in Singapore, with results that validate the effectiveness of the model and also imply policy recommendations to stimulate the development of PV market. Copyright © 2018 Elsevier Ltd. All rights reserved.