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The price of risk in residential solar investments

Petrovich, Beatrice, Carattini, Stefano and Wüstenhagen, Rolf (2021) The price of risk in residential solar investments. Ecological Economics, 180. ISSN 0921-8009

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Identification Number: 10.1016/j.ecolecon.2020.106856

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.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/ecological-e...
Additional Information: © 2020 Elsevier B.V
Divisions: Economics
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HD Industries. Land use. Labor
JEL classification: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O33 - Technological Change: Choices and Consequences; Diffusion Processes
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q4 - Energy > Q42 - Alternative Energy Sources
Date Deposited: 13 Jan 2021 13:24
Last Modified: 20 Sep 2021 02:19
URI: http://eprints.lse.ac.uk/id/eprint/108405

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