We develop a real options model for firms' investments in the user-side energy storage. After the investment, the firms obtain profits through the peak-valley electricity price spreads. They face a choice between making this irreversible investment and holding an option to delay the investment because of the uncertainty in the future price spreads. The government tries to encourage the firms to invest immediately by providing subsidies to this irreversible investment. The subsidy policy, however, can be activated or terminated at an uncertain time and therefore, the firms face additional polic...
