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The price of risk in residential solar investments

Beatrice Petrovich, Stefano Carattini and Rolf Wüstenhagen

Ecological Economics, 2021, vol. 180, issue C

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.

Keywords: Residential solar investors; Risk preferences; Policy risk; Market risk; Discrete choice experiment; Information asymmetries (search for similar items in EconPapers)
JEL-codes: D1 D81 O33 Q42 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:180:y:2021:i:c:s0921800919321780

DOI: 10.1016/j.ecolecon.2020.106856

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