Sunday, November 27, 2022

Solar Adoption and Solar Incentives

When a new consumer technology makes its debut, its adoption rate typically follows a predictable path. The first buyers come from a narrow slice of high-income users or tech enthusiasts who are willing to pay high prices. Over time, as prices fall and economies of scale kick in, sales climb sharply and the technologies become mass-market products. Eventually, the market becomes saturated, and the number of users reaches a plateau.

This pattern of adoption is what was expected for roof top solar photo voltaic arrays, but they have not performed that way. In a recent study published in Joule and led by Zhecheng Wang, a doctoral student in Stanford’s Department of Civil and Environmental Engineering, researchers examined the adoption of solar photo voltaic panels in the United States.

Previously, Stanford researchers had analyzed the number of solar installations at a single point in time. That work quantified that solar arrays were much less common in low-income communities, but it didn’t offer much insight into the pattern of adoption of this technology. From a public policy point of view it is important to understand the pattern of adoption of this technology.

To investigate why, the researchers at Stanford developed a computer model to interpret low image resolution in older satellite imagery to enable the researchers to identify the installation year of PVs from historical aerial and satellite images. The model which they named DeepSolar++  analyzed satellite images to identify where solar panels are and when they were installed in more than 400 counties across the United States. The researchers compiled images from 2006 through 2017 (a narrow time span for the adoption of an expensive and limited gratification and/or status technology) and then combined that data with information about each community’s demographics as well as local financial incentives for solar power

Their analysis showed that low-income communities are not only delayed in their adoption onset but also appear to saturate more quickly at lower adoption levels. Thought the time frame for study may simply be too narrow, to study the full life cycle of solar adoption, the researchers assumed it wasn’t and  examined the correlation of adoption to financial incentives.

Federal, state and local governments have long offered financial incentives, often in the form of rebates on income or property taxes. Performance-based incentives are much fewer. The Stanford researchers used a federal database of state incentives for renewable energy to identify which kinds of incentives were available in each community. This overlooked some local incentives; nonetheless, they found that only upper-income communities seemed to respond to tax incentives.

Their analysis of financial incentives offered on a state by state basis found that performance-based incentives (which reward customers based on how much solar they produce or how much less electricity they buy from the grid) are positively associated with saturated adoption levels for lower-income communities. Causality was not shown, only a correlation. They were unsure why performance-based incentives seem effective among lower-income communities.

from  Article

The researchers pointed out that lower-income families have much lower taxes and thus benefit less from tax both property and income tax breaks. People who rent rather than own their homes have no property taxes at all. The lead author, Ram Rajagopal, speculates that the less common performance-based type of incentive may motivate the owners of apartment buildings. Without financial incentives, installing solar photovoltaic panels to generate electricity is still more expensive than buying electricity from the grid. If you do not fully benefit from financial incentives, you do not install solar. This is simply rational behavior.

As Investopedia pointed out in their excellent analysis of the costs and benefits of solar power, it is capital intensive and the main cost of owning a system comes upfront when buying the equipment. The money has to be paid upfront for design, permits, solar panels, inverters, wiring, installation etc. In addition to installation costs, there are operating and maintenance costs for a photovoltaic solar array. Aside from cleaning the panels regularly, inverters generally need replacement after several years of use, rack systems fail (especially in snow which can lift up the racks) and roofs leak especially after mounting racks on them. In addition, there is great variability in solar production potential based on location and orientation of the roof and shading.

The cold hard number of my solar system

The financial benefits of solar are limited to the long term cost savings generated after the system pays for itself and before the roof needs to be replaced. This can be a short window of time and requires that the home owner live in the house for about 15 years to benefit fully. There are limited emotional benefits of owning solar- which are mostly private and have limited appeal. Unlike driving a Tesla or flashing your iPhone 14 -virtually no one sees my solar panels. I think the Stanford researchers who are clearly interested in public policy, should include a behavioral economist on their team. 

The Stanford study was funded by the U.S. Department of Energy, the National Science Foundation and a Stanford Precourt Pioneering Project award.

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