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Buy, Lease, Or PPA? Drivers of the Mode of Consumer Energy Technology Adoption
Varun Rai, LBJ School of Public Affairs, The Univesrsity of Texas at Austin, 512-471-5057, raivarun@utexas.edu
D. Cale Reeves, LBJ School of Public Affairs, The Univesrsity of Texas at Austin, 512-931-1451, d.cale.reeevs@gmail.com
Robert Margolis, National Renewable Energy Laboratory, 202-488-2222, robert.margolis@nrel.gov
Overview
As decreasing hardware costs drive down the installed price of solar photovoltaic (PV) systems, barriers to adoption other than hardware costs become increasingly salient. Indirect costs related to information gathering can be intensive, particularly for capital-intensive durable goods like solar PV. Overcoming these barriers requires a thorough understanding of households decision-making process with respect to capital-intensive consumer energy technologies. However, there is a paucity of literature linking adopters information context to the eventual decision outcomes. Residential adopters face a range of barriers to adoption, including uncertainties about price and performance, information costs, and the actual financial outlay necessary to install a solar PV system ADDIN EN.CITE ADDIN EN.CITE.DATA (Bollinger & Gillingham, 2012; Carley, 2009; Drury et al., 2012; Jager, 2006; Rai & McAndrews, 2012; Rai & Robinson, 2013; Rai & Sigrin, 2013; Rai & Robinson, 2015; Robinson & Rai, 2015). Despite these barriers, residential PV adoption is growing rapidly in several parts of the U.S. ADDIN EN.CITE GTM Research/SEIA: U.S. Solar Market Insight2014369(GTM Research/SEIA: U.S. Solar Market Insight, 2014)36936927GTM Research/SEIA: U.S. Solar Market Insight,U.S. Solar Market Insight Report: Q2 2014: Executive Summary2014http://www.greentechmedia.com/research/ussmi(GTM Research/SEIA: U.S. Solar Market Insight, 2014). The emergence of third-party ownership (TPO) models has facilitated the diffusion of residential PV by tapping into new market segments ADDIN EN.CITE Rai2013277(Rai & Sigrin, 2013)27727717Varun RaiBenjamin SigrinDiffusion of environmentally-friendly energy technologies: buy versus lease differences in residential PV marketsEnvironmental Research LettersEnvironmental Research Letters0140228120131748-9326(Rai & Sigrin, 2013), but variation in contract structures change the informational demands on the consumer during their decision making phase ADDIN EN.CITE Davidson2015580(Davidson, Steinberg, & Margolis, 2015)58058017Davidson, CarolynSteinberg, DanielMargolis, RobertExploring the market for third-party-owned residential photovoltaic systems: insights from lease and power-purchase agreement contract structures and costs in CaliforniaEnvironmental Research LettersEnvironmental Research Letters02400610220151748-9326(Davidson, Steinberg, & Margolis, 2015). Key factors in the decision making phase such as peer effects, the availability of TPO options, the availability of upfront funds, and concerns about financial performance or operations and maintenance (O&M) may drive whether a potential adopter actually adopts and may further inform the mode of adoption (i.e., the implementation outcome).
Methods
We use data from a unqiue survey of residential solar PV adopters in northern California. Survey respondents supplied information about various social, economic, and behavioural aspects of their decision to adopt PV, including details of their purchase/leasing/power purchase agreement (PPA) and information-gathering process. To this data we match system-level data including system size, cost, connection date, and rebate amount. We use descriptive statistics, Fishers exact test for bivariate relationships, and multinomial logistic regression to analyse the PV adoption decision-making process, and in particular the drivers of the mode of adoption (buy, lease, or PPA).
Results
We find that installers of solar PV play a critical role in adopters decision-making process. Adopters initial motivation is frequently installer-initiated through direct marketing campaigns. When installers initiate the decision making process they also exhibit a tendency to dominate other streams of information. Direct marketing (for example, door-to-door marketing) in particular has a chilling effect on adopters tendency to reach out to and to value information from neighbors and acquaintances, suggesting that it can serve as a substitute for information obtained from neighbors. Adopters that buy their systems and pay upfront pay significantly lower per-unit prices than those that take a loan. Adopters that lease with monthly payments face similar per-unit price as those that buy with a loan. However after considering incentives and the time-value of money and controlling for a variety of factors including installed capacity and year, adopters that buy with a loan face significantly higher costs than those that buy and pay upfront, while those that lease over time face significantly lower costs on the order of $1.24/W as has been noted in the literature previously. In addition to facing lower costs, adopters that lease are able to assuage concerns about their personal financial situation and uncertainties about O&M. Despite this, some adopters that value the financial returns of the adoption decision financially saavy adopters prefer to buy.
Conclusions
Overall, our findings provide a nuanced picture of the social and economic drivers involved in the decision to adopt residential solar. Building upon previous research related to peer effects in the adoption of residential PV ( ADDIN EN.CITE ADDIN EN.CITE.DATA Bollinger & Gillingham, 2012; Noll et al., 2014; Rai & Robinson, 2013), we find that in addition to functioning as a valuable information channel for potential adopters, peer effects also have a significant impact on the final decision to adopt. An important insight we obtain is that the impact of peer effects is conditioned by supply-side factors such as the marketing strategies of solar installers. Furthermore, we find that the decision to purchase solar PV outright versus pursuing TPO is determined in large parts by three factors: (1) concerns about the availability of upfront funds (favors TPO), (2) the importance of financial returns (higher emphasis favors buying), and (3) by performance concerns like O&M costs (higher O&M concerns favor TPO). Finally, we find that households do not consider solar PV adoption in a vacuum; the decision to adopt is often nested in among a bundle of decisions together constituting an energy and home improvement plan. The implication of this finding is that attempts to estimate the broader financial benefits and costs of solar PV adoption (such as impact on home value or electricity consumption behavior) must carefully control for confounding co-adoptions in order to avoid bias.
References
ADDIN EN.REFLIST
Bollinger, B., & Gillingham, K. (2012). Peer effects in the diffusion of solar photovoltaic panels. Marketing Science, 31(6), 900-912.
Carley, S. (2009). Distributed generation: An empirical analysis of primary motivators. Energy Policy, 37(5), 1648-1659. doi: 10.1016/j.enpol.2009.01.003
Davidson, C., Steinberg, D., & Margolis, R. (2015). Exploring the market for third-party-owned residential photovoltaic systems: insights from lease and power-purchase agreement contract structures and costs in California. Environmental Research Letters, 10(2), 024006.
Drury, E., Miller, M., Macal, C. M., Graziano, D. J., Heimiller, D., Ozik, J., & Perry IV, T. D. (2012). The transformation of southern California's residential photovoltaics market through third-party ownership. Energy Policy, 42, 681-690.
GTM Research/SEIA: U.S. Solar Market Insight. (2014). U.S. Solar Market Insight Report: Q2 2014: Executive Summary.
Jager, W. (2006). Stimulating the diffusion of photovoltaic systems: A behavioural perspective. Energy Policy, 34(14), 1935-1943.
Noll, D., Dawes, C, & Rai, V. (2014). Solar community organizations and active peer effects in the adoption of residential PV. Energy Policy, 67, 330343.
Rai, V., & McAndrews, K. (2012). Decision-making and behavior change in residential adopters of solar PV. Paper presented at the Proceedings of the World Renewable Energy Forum, Denver, Colorado.
Rai, V., & Robinson, S. A. (2013). Effective information channels for reducing costs of environmentally-friendly technologies: evidence from residential PV markets. Environmental Research Letters, 8(1), 014044.
Rai, V., & Sigrin, B. (2013). Diffusion of environmentally-friendly energy technologies: buy versus lease differences in residential PV markets. Environmental Research Letters, 8(1), 014022.
Rai, V., & Robinson, S. A. (2015). Agent-based modeling of energy technology adoption: Empirical integration of social, behavioral, economic, and environmental factors. Environmental Modelling & Software, 70, 163-177.
Robinson, S. A., & Rai, V. (2015). Determinants of spatio-temporal patterns of energy technology adoption: An agent-based modeling approach. Applied Energy, 151, 273-284.
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