Addressing Biases that impact homeowners’ adoption of solar panels

ABSTRACT

Solar power is now economically competitive with fossil fuels in many countries, yet relatively few homeowners have elected to install solar panels. A principal reason for this behavior stems from cognitive biases—such as myopia, inertia, and herding—that cause consumers to avoid investing in long-term measures, even those that are financially attractive to them and produce social benefits, such as reducing the long-term consequences of climate change. A behavioral risk audit can demonstrate ways to address these cognitive biases, in concert with short-term economic incentives, social influences and regulation to spark climate action now. We focus on the installation of solar panels and the additional use of solar energy, an issue that has global relevance. The behavioral risk audit offers a way to guide decisions on how to incentivize and accelerate diffusion of solar in the United States and offers lessons for other countries.

Key policy insights

• Solar power is now economically competitive with fossil fuels in many countries, yet relatively few homeowners have installed solar panels on their property.

• Cognitive biases such as myopia, inertia, and herding cause consumers to avoid investing in long-term measures, such as solar panels, even if they are financially attractive.

• A behavioral risk audit that addresses biases in concert with short-term economic incentives, social influences and regulation encourages the adoption of solar panels.

KEYWORDS:

• Solar
• decision-making
• choice architecture
• incentives
• regulation

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions

2 https://www.eia.gov/energyexplained/us-energy-facts/

3 https://www.energy.gov/articles/doe-releases-solar-futures-study-providing-blueprint-zero-carbon-grid

4 https://www.seia.org/initiatives/solar-investment-tax-credit-itc

5 https://www.seia.org/research-resources/solar-power-purchase-agreements

6 https://bakerhomeenergy.com/blog/2018-05-17/what-difference-between-ppa-and-lease/

7 https://www.seia.org/initiatives/net-metering

8 Note that the new European Renewable Energy Directive does not allow net metering (Iliopoulos et al., 2020).

9 https://www.oracle.com/index.html

10 For examples of the role that sludge has played in different contexts, see Thaler and Sunstein (2021).

11 https://solsmart.org/how-we-help/what-is-solsmart/

Additional information

Funding

This work was supported by Alfred P. Sloan Foundation: [Grant Number G-2018-11100/SUB18-04]; Wharton Partnership for Risk Management; Wharton Risk Management and Decision Processes Center.