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CAPEX vs FLEX: The optimal investment mix to integrate decentralized electricity production

Author

Listed:
  • Voahary Andriamaromanana

    (HEC Liège)

  • Axel Gautier

    (HEC Liège)

  • Jean-Christophe Poudou

    (MRE - Montpellier Recherche en Economie - UM - Université de Montpellier, MRE - Montpellier Recherche en Economie - UM - Université de Montpellier)

Abstract

Decentralized production increases grid congestion, forcing solar panels to disconnect to prevent over-voltage, a negative externality linked to installed capacity that limits system penetration. Key solutions include network reinforcement (Capex), and investing in flexibility resources (Flex) to boost self-consumption. Using an agent-based model with prosumers, a retailer, and a DSO, we study the trade-off between Capex and Flex by linking a disconnection probability to these investments. Our results indicate that, due to the externality, market outcomes feature excessive Capex and insufficient Flex compared to the optimal mix. While tariff adjustments and Flex subsidies can help, challenges remain because of information asymmetry and heterogeneity.

Suggested Citation

  • Voahary Andriamaromanana & Axel Gautier & Jean-Christophe Poudou, 2026. "CAPEX vs FLEX: The optimal investment mix to integrate decentralized electricity production," Post-Print hal-05572241, HAL.
    • Handle: RePEc:hal:journl:hal-05572241
    DOI: 10.1016/j.eneco.2026.109316
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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