When do households invest in solar photovoltaics? An application of prospect theory

While investments in renewable energy sources (RES) are incentivized around the world, the policy tools that do so are still poorly understood, leading to costly misadjustments in many cases. As a case study, the deployment dynamics of residential solar photovoltaics (PV) invoked by the German feed-...

Full description

Saved in:
Bibliographic Details
Published in:Energy policy 2017-10, Vol.109, p.270-278
Main Authors: Klein, Martin, Deissenroth, Marc
Format: Article
Language:English
Subjects:
Alternative energy sources
Aversion
Case studies
Deployment
Deployment modeling
Economics
Energy policy
Feed-in tariff design
Households
Investment
Investments
Kahneman, Daniel (1934-2024)
Legislation
Photovoltaic cells
Photovoltaics
Profitability
Prospect theory
Renewable energy
Renewable energy sources
Residential energy
Solar cells
Solar energy
Tariffs
Uptake
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:While investments in renewable energy sources (RES) are incentivized around the world, the policy tools that do so are still poorly understood, leading to costly misadjustments in many cases. As a case study, the deployment dynamics of residential solar photovoltaics (PV) invoked by the German feed-in tariff legislation are investigated. Here we report a model showing that the question of when people invest in residential PV systems is found to be not only determined by profitability, but also by profitability's change compared to the status quo. This finding is interpreted in the light of loss aversion, a concept developed in Kahneman and Tversky's prospect theory. The model is able to reproduce most of the dynamics of the uptake with only a few financial and behavioral assumptions. •A model to describe the investment dynamics of residential PV systems is proposed.•The dynamics are reproduced with only a few financial and behavioral assumptions.•The model is parsimonious enough to be integrated in energy system models.•The findings are interpreted in the light of prospect theory and loss aversion.
ISSN:0301-4215
1873-6777
DOI:10.1016/j.enpol.2017.06.067