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Using Investments in Solar Photovoltaics as Inflation Hedges

Author

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  • Seyyed Ali Sadat

    (Department of Electrical & Computer Engineering, Western University, London, ON N6A 5B9, Canada)

  • Kashish Mittal

    (Ivey School of Business, Western University, London, ON N6A 5B9, Canada)

  • Joshua M. Pearce

    (Department of Electrical & Computer Engineering, Western University, London, ON N6A 5B9, Canada
    Ivey School of Business, Western University, London, ON N6A 5B9, Canada)

Abstract

Mainstream strategies for protecting wealth from inflation involve diversification into traditional assets like common stocks, gold, fixed-income securities, and real estate. However, a significant contributor to inflation has been the rising energy prices, which have been the main underlying cause of several past recessions and high inflation periods. Investments in distributed generation with solar photovoltaics (PV) present a promising opportunity to hedge against inflation, considering non-taxed profits from PV energy generation. To investigate that potential, this study quantifies the return on investment (ROI), internal rate of return (IRR), payback period, net present cost, and levelized cost of energy of PV by running Solar Alone Multi-Objective Advisor (SAMA) simulations on grid-connected PV systems across different regions with varying inflation scenarios. The case studies are San Diego, California; Boston, Massachusetts; Santiago, Chile; and Buenos Aires, Argentina. Historical inflation data are also imposed on San Diego to assess PV system potential in dynamic inflammatory conditions, while Boston and Santiago additionally analyze hybrid PV-battery systems to understand battery impacts under increasing inflation rates. Net metering credits vary by location. The results showed that PV could be used as an effective inflation hedge in any region where PV started economically and provided increasingly attractive returns as inflation increased, particularly when taxes were considered. The varying values of the ROI and IRR underscore the importance of region-specific financial planning and the need to consider inflation when evaluating the long-term viability of PV systems. Finally, more capital-intensive PV systems with battery storage can become profitable in an inflationary economy.

Suggested Citation

  • Seyyed Ali Sadat & Kashish Mittal & Joshua M. Pearce, 2025. "Using Investments in Solar Photovoltaics as Inflation Hedges," Energies, MDPI, vol. 18(4), pages 1-27, February.
    • Handle: RePEc:gam:jeners:v:18:y:2025:i:4:p:890-:d:1590210
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    References listed on IDEAS

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