The price of risk in residential solar investments
Journal
Ecological Economics
Type
journal article
Date Issued
2021-02
Author(s)
Abstract
Households are key actors in decarbonizing our economy, especially when it comes to investments in a decentralized energy system, such as solar photovoltaics (PV). The phasing-out of feed-in tariffs, and unexpected policy changes in the wake of an increasingly polarized climate debate, require residential PV investors to bear new risks. Conducting a discrete choice experiment coupled with a randomized informational treatment among potential residential solar investors in Switzerland, we test whether policy and market risks deter households from investing in solar. We find that salient policy risk reduces households' intention to invest in solar, especially for risk-averse individuals. Conversely, households seem less sensitive to market risk: residential solar investors accept volatile revenues, as long as a price floor for excess electricity sold to the grid is guaranteed. Our study suggests that keeping perceived policy uncertainty low is more important for residential solar investors than fully hedging against electricity market risk.
Language
English
Keywords
Residential solar investors
Risk preferences
Policy risk
Market risk
Discrete choice experiment
Information asymmetries
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Refereed
Yes
Publisher
Elsevier
Volume
180
Number
106856
Subject(s)
Contact Email Address
beatrice.petrovich@unisg.ch
Additional Information
Highlights: Policy risk negatively affects Swiss households' willingness to invest in solar. Households may underappreciate policy risk due to information asymmetries.
If new information makes policy risk salient, some are likely to leave the market. Households are rather insensitive to market risk, if a positive price floor exists. Residential solar investors care more about stable policies than secure revenues.
If new information makes policy risk salient, some are likely to leave the market. Households are rather insensitive to market risk, if a positive price floor exists. Residential solar investors care more about stable policies than secure revenues.
Eprints ID
262014