Peer effects and ownership costs in the diffusion of residential solar photovoltaic in California

Abstract

This research analyses the California Solar Initiative (CSI) Program data to identify and describe peer effects and price elasticity to adoption affecting the patterns of residential PV adoption. Descriptive statistics and adoption trends are analyzed to explore the impacts of peer effects and third-party owned system on the diffusion of residential solar PV in California. As the residential solar PV technology is still in an early stage of market formation, understanding the patterns of adoption in relatively more mature market can have broad implications for wider diffusion of the technology at the national level. In the first part of the thesis, I build an econometric model to estimate the influence of system cost and peer effects on the rate of diffusion at the zip code-level. The results reveal significant and positive installed base effects in the rate of future adoption. These results provide support to the hypothesis that peer effects help accelerate the adoption of new technologies. The cost-to-customer reduction is negative and significant at the state level. The impact of installed base in inducing new adoption is larger in zip codes with higher overall adoptions. The second part of the thesis presents trends in installation and choice of system capacity of major adoption clusters in California and analyzes the spread of third-party owned systems. Evidence from major adoption clusters in California has shown that growth in leasing adoption exhibits exponential characteristics while growth of customer owned system shows strongly linear feature. This suggests that third-party owned systems play a role in expanding the solar PV market to a significantly large population, especially given that this business would significantly reduces information cost associated with PV adoption. These results offer direct policy and marketing insights that would be useful in speeding up the diffusion of residential PV.