Eclipsing the Barriers to Solar Installation: The Effects of Conventional Substitutes and Renewable Policy Incentives on Residential Solar Panel Installations and Capacity in the United States

Abstract

To date, most studies on the residential solar photovoltaic sector have focused on quantifying how policy incentives and social variables have affected aggregate capacity development on a state-by-state or county-basis. This paper expands upon the current literature by disaggregating this capacity metric into an analysis of what drives households to install solar and what affects the corresponding capacity installed. Utilizing a Zero-Inflated Negative Binomial (ZINB) regression methodology, the first portion of this study examines how electricity and natural gas prices as well as policy incentives and demographic variables influence a household’s likelihood to install solar photovoltaics. The ZINB regression isolates this likelihood effect via a unique dependent variable that captures the count of monthly solar installations by state. The second half of the study builds upon this foundation by utilizing an OLS fixed effects regression to identify the factors that affect a household’s decision in electing an installed capacity size for a solar array. The results of this study suggest that both electricity and natural gas prices have significant effects on a household’s likelihood to install solar photovoltaics. Moreover, results imply that these two factors likewise affect the size of array ultimately installed by households. To date, links between residential solar capacity development and natural gas price parameters have only tentatively been explored. Still, the results of this study suggest that the U.S. natural gas Shale Boom pose serious implications for solar PV development due to high cross-price elasticity and substitute cost competitiveness. In addition, results revealed that the following policy incentives, when adopted by a state, were found to have a significant and positive effect on both installation likelihood and array size: Net Metering, Public Benefit Funds, Interconnection Standards, Rebates, and High RPS Targets. This study provides additional insight into the impacts and interactions of electricity and natural gas prices as well as current state policy incentives. Present findings can be utilized to inform the design of more effective renewable policies geared towards the development and expansion of residential solar photovoltaics.