Source: UNIV OF MASSACHUSETTS submitted to
UNDERSTANDING THE CHOICE BETWEEN LEASING AND OWNING FOR RESIDENTIAL SOLAR SYSTEMS
Sponsoring Institution
National Institute of Food and Agriculture
Project Status
NEW
Funding Source
Reporting Frequency
Annual
Accession No.
1016083
Grant No.
(N/A)
Project No.
MAS00523
Proposal No.
(N/A)
Multistate No.
(N/A)
Program Code
(N/A)
Project Start Date
Apr 30, 2018
Project End Date
Sep 30, 2021
Grant Year
(N/A)
Project Director
Rong, RO.
Recipient Organization
UNIV OF MASSACHUSETTS
(N/A)
AMHERST,MA 01003
Performing Department
Resource Economics
Non Technical Summary
Residential solar power is an important technological innovation that holds promise for a cleaner energy future. Out of 2.5 million households in the state of Massachusetts, those who installed solar photovoltaic(PV) systems grew from a mere 14 households to 60,465 households between 2010-2017. Between 2015-2017, the residential installations are growing at an even higher rate of 50% (Data source: Massachusetts Department of Energy Resources). It is crucial to understand what factors are determining the household decisions in the process of adopting the solar PV system.Each potential adopter faces a crucial decision--to lease or to own the panels. Leasing the panels from a solar company incurs little to no upfront cost. A fixed lease payment, however, reduces the net saving from the electricity generated by the panels. On the other hand, owning solar panels includes a high immediate cost with a higher return in future periods resulting from the absence of lease payments. Moreover, solar owners can receive additional revenue from selling Solar Renewable Energy Certificates (SREC). The price of SRECs is determined in the marketplace for such certificates and is subject to significant price fluctuation. The tradeoff is obvious. Owning is risky and involves high upfront cost, but can potentially yield higher future returns from SREC revenues. Leasing is risk-free with no front-end payment, but lessees forgo SREC revenues. The choice between these two options naturally depends upon the decision maker's tendency to tradeoff payment over time (known in behavioral economics as "time preference") and tolerance towards risk (namely "risk preference").In this study, we propose a conceptual model that considers the household's costs and benefits in both owning and leasing options. More importantly, the model takes into accountdecision makers' preference for delayed return and risky outcomes. We then empirically examine the connection between an individual's behavioral preference and their own-vs-lease choice. To implement this project, we plan to recruit solar homeowners from Massachusetts and measure their time and risk preferences using state-of-the-art decision tasks recently developed in the field of behavioral economics. Participants of the study will receive real monetary payoff based on their own decisions. This "revealed" preference approach may provide a more accurate measurement of individual preference than the stated preference approach. We then link homeowners' responses in these decision tasks with information from a detailed survey on their solar system specifications and history of energy usage.The choice of owning versus leasing has significant policy relevance. Currently, among the households that have solar PV systems in Massachusetts, 68% are lessors and 32% own their systems. State governments, such as that of Massachusetts, provide many incentives on top of the federal tax credit in hopes that more residents would adopt solar energy. The return to such public investment varies depending on the ownership of the panels. The state government prefers solar ownership since its residents fully retain the benefit of the subsidy. Leasing panels from a national solar installer, on the other hand, channels part of the subsidy benefit outside of the state. By understanding how individual behavioral traits determine the decision between owning and leasing the residential solar system, we will be able to suggest ways to increase the public "bang-of-the-buck" for solar incentives at the state level.In addition, the findings in this study have broader relevance for the adoption of other green technologies such as battery storage and electric vehicles that can either be bought or leased.
Animal Health Component
0%
Research Effort Categories
Basic
100%
Applied
0%
Developmental
0%
Classification

Knowledge Area (KA)Subject of Investigation (SOI)Field of Science (FOS)Percent
60760203010100%
Knowledge Area
607 - Consumer Economics;

Subject Of Investigation
6020 - The family and its members;

Field Of Science
3010 - Economics;
Goals / Objectives
The primary goal of this study is to link behavioral traits, specifically risk and time preferences, to own-vs-lease decisions in the context of solar panel adoption. The insights obtained from this study will help us better tailor incentives and marketing strategy towards solar ownership at the state and local level.A secondary goal of the project is to provide support and training for two early-career Ph.D. students (Ming Ge and Emma Grazier) and allow them to learn the literature and techniques of experimental and environmental economics through providing research assistance to the two principal investigators.
Project Methods
This project uses three primary methods from the discipline of economics: theoretical modeling, data collection using field experiments and econometric analysis.A formal model will be developed adopting the general framework used in the literature of lease-vs-own decision modeling. We will modify the general model to incorporate unique costs and benefits faced by decision-makers in the context of solar adoption (e.g. risky SREC market revenue, etc). More importantly, to investigate individual's choice under risk and time delay, we expand beyond the classical expected present value approach and allow the choice to be governed by maximizing the utility function with flexible behavioral parameters (e.g. Constant Relative Risk Aversion and Prelec one-parameter discount factor). By doing so, our model will be a generalization of the expected-present-value types of models.Experimental data has been a well-established source for testing theories and for the design and analysis of public policies (Smith 1982). Field experiments collecting data from the non-student population is especially valuable as it provides stronger confidence in the external validity of the drawn conclusions. We filed a public record request to the Massachusetts Department of Energy Resources to gain access to a list of all solar homeowners residing in the state of Massachusetts. Additional key variables in the same dataset include (1) system capacity, (2) pre-tax-credit installation cost, (3) timing of the installation and (4) whether the system is owned or leased by the resident. The last variable is particularly important since it is the choice variable we are interested in. Since we intend to conduct the experiment at a campus computer lab, we choose to focus our recruiting on the sample of 2,646 residential addresses in Hampshire county, all of which are in short driving distance to UMass Amherst. For sufficient statistical power, we intend to recruit 200 households for this study.During each experimental session, we will measure each participating household's behavioral traits using two sets of incentivized choices--one for risk preference and one for time preference. Risk preference elicitation asks an individual to choose between paired lottery options with outcomes at different risk levels. The preferred lottery reveals the level of risk tolerance of the decision maker. Time preference elicitation offers two payment amounts with different time delays. The patient individual would prefer the higher later payment than lower sooner payment. We design these incentivized tasks so it is optimal for individuals to reveal their true preference since non-optimal choice bears economic costs. These so-called "incentive-compatible" tasks are considered to produce a more accurate measure of behavioral traits than un-incentivized survey questions (Charness et. al 2013). We believe eliciting preferences with incentivized tasks is a formal, replicable, and relatively inexpensive means of measuring individual behavioral traits. To link such measures with field behavior is especially valuable in understanding environmental decisions such as the solar own-vs-lease choice.At the completion of preference elicitation tasks, each participant will be asked to fill in a detailed survey providing information on their solar system's specifications, the forecasted return from the solar installer, the history of actual energy generation and usage, as well as their household's social-demographic characteristics (age, income, etc). This information will be used as control variables in the regression analysis.All of the experiments will be conducted in the Cleve E. Willis Experimental Economics Laboratory in the Department of Resource Economics at the University of Massachusetts Amherst campus. The experiment interface uses Z-tree, a software developed specifically for economic experiments and employed widely in the field of experimental economics (Fischbacher 2007). The preference elicitation tasks have already been designed and coded by Ming Ge, a graduate student in the Department of Resource Economics. We expect the prototype to be approved soon by the Institutional Review Board of the University of Massachusetts Amherst.Individual choice data collected from the preference elicitation tasks yields both parametric and non-parametric measures of risk aversion and patience for each individual. The preference measure can be combined with the household and solar system information and analyzed with appropriate statistical techniques. Specifically, with binary dependent variables (own==1, lease==0), a standard approach is to use a logit or probit regression model. Alternatively, we can design a hazard model that takes into consideration of the timing of installation. Statistical packages such as Stata have pre-programmed routines to estimate these models, and the investigators have substantial experience with these statistical techniques.

Progress 10/01/19 to 09/30/20

Outputs
Target Audience:Due to the COVID pandemic (conference cancellation), we are unable to conduct outreach forthe current research project. Changes/Problems:As stated earlier, COVID pandemic has made it impossible to collect data through in-person lab sessions. We intend to explore technology to conduct experiments online. What opportunities for training and professional development has the project provided? Nothing Reported How have the results been disseminated to communities of interest?Preliminary results are compiled into a pdf file and circulated among the experiment participants (solar residents) who indicated an interest in the study result. Christine Crago presented part of the analytical result at a regional environmental economics conference. What do you plan to do during the next reporting period to accomplish the goals?COVID pandemic has a significant impact on the progress of the project. We initially planned to conduct lab sessions to collect more data, but in-person lab work is not possible at this moment. We have investedsignificant time to figure out the online recruiting and online experiment technology. It is currently being piloted with a graduate student project (unrelated to solar). We plan to collect data through some online sessions in the next reporting period of the project.

Impacts
What was accomplished under these goals? Emma Grazier continues to engage with the project. She conducted some data analysis for the data collected and are progressing to develop a dissertation related with solar energy.

Publications


    Progress 10/01/18 to 09/30/19

    Outputs
    Target Audience:Dr. Christine Crago presented the preliminary results of the study at the Northeastern Agricultural and Resource Economics Association 2019 annual meeting. The audience are the academic and professional participants of the conference presentation. Dr. Rong mentored an undergraduate research assistant (Scott Cohn, the CAFE summer scholar) to present at the CAFE poster sessions. The audience are the researchers (faculty and students) who attended the poster session. Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?We have provided thorough training to the PhD students on designing and conducting laboratory experiment. Emma Grazier is also involved in analyzing the survey component of the dataset. How have the results been disseminated to communities of interest?Dr. Christine Crago presented the preliminary results at Northeastern Agricultural and Resource Economics Association 2019 annual meeting. Emma Grazier presented part of the data results at the department graduate conference. Scott Cohn, an undergraduate research assistant under CAFE funding presented part of the data results at the CAFE poster session. What do you plan to do during the next reporting period to accomplish the goals?We plan to draft the manuscript forjournal publication.

    Impacts
    What was accomplished under these goals? For the primary goal, our analysis shows that risk aversion is a strong predictor of the choice to lease. We also find that time preference is statistically unrelated with the choice of own-vs-lease. We have provided thorough training to the two PhD students. Emma hasdetermined to develop her dissertation with a topic closely related with the green energy theme. Using the current result of this study, We have also received two UMass internal grant awards: Healey Faculty Research grant ($14,221) and SBS Faculty Research grant ($6,960).

    Publications


      Progress 04/30/18 to 09/30/18

      Outputs
      Target Audience: Nothing Reported Changes/Problems: Nothing Reported What opportunities for training and professional development has the project provided?Ming Ge and Emma Grazier obtained significant training on programming laboratory experiments, recruiting field subjects, supervising laboratory sessions. How have the results been disseminated to communities of interest? Nothing Reported What do you plan to do during the next reporting period to accomplish the goals?The dataset will be analyzedmore thoroughly. The resulting conclusion can be disseminated through presentations and working paper in the academic conferences. We also plan to convey our results to a broader audience, including residential solar owner/lessees who are interested in the results of the study, solar installation companies, local and state renewable energy group, etc.

      Impacts
      What was accomplished under these goals? We have completed the data collection and preliminarydata analysis of the study. We have also provided research training and support for Ming Ge and Emma Grazier on the topic of conducting field and laboratory experimental research.

      Publications