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When Do Households Invest in Solar Photovoltaics? An Application of Prospect Theory

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  • Martin Klein
  • Marc Deissenroth

Abstract

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

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  • Martin Klein & Marc Deissenroth, 2018. "When Do Households Invest in Solar Photovoltaics? An Application of Prospect Theory," Papers 1808.05572, arXiv.org.
  • Handle: RePEc:arx:papers:1808.05572
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    2. Say, Kelvin & John, Michele & Dargaville, Roger, 2019. "Power to the people: Evolutionary market pressures from residential PV battery investments in Australia," Energy Policy, Elsevier, vol. 134(C).
    3. Haoran Zhao & Sen Guo & Huiru Zhao, 2018. "Selecting the Optimal Micro-Grid Planning Program Using a Novel Multi-Criteria Decision Making Model Based on Grey Cumulative Prospect Theory," Energies, MDPI, Open Access Journal, vol. 11(7), pages 1-24, July.
    4. Say, Kelvin & John, Michele & Dargaville, Roger & Wills, Raymond T., 2018. "The coming disruption: The movement towards the customer renewable energy transition," Energy Policy, Elsevier, vol. 123(C), pages 737-748.
    5. Töppel, Jannick & Tränkler, Timm, 2019. "Modeling energy efficiency insurances and energy performance contracts for a quantitative comparison of risk mitigation potential," Energy Economics, Elsevier, vol. 80(C), pages 842-859.
    6. Candas, Soner & Siala, Kais & Hamacher, Thomas, 2019. "Sociodynamic modeling of small-scale PV adoption and insights on future expansion without feed-in tariffs," Energy Policy, Elsevier, vol. 125(C), pages 521-536.
    7. Jan Paul Baginski & Christoph Weber, "undated". "Coherent estimations for residential photovoltaic uptake in Germany including spatial spillover effects," EWL Working Papers 1902, University of Duisburg-Essen, Chair for Management Science and Energy Economics.
    8. Wu, Yunna & Xu, Chuanbo & Zhang, Ting, 2018. "Evaluation of renewable power sources using a fuzzy MCDM based on cumulative prospect theory: A case in China," Energy, Elsevier, vol. 147(C), pages 1227-1239.
    9. O'Sullivan, Marlene & Edler, Dietmar, 2020. "Gross Employment Effects in the Renewable Energy Industry in Germany : An Input–Output Analysis from 2000 to 2018," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
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    12. Marlene O’Sullivan & Dietmar Edler, 2020. "Gross Employment Effects in the Renewable Energy Industry in Germany—An Input–Output Analysis from 2000 to 2018," Sustainability, MDPI, Open Access Journal, vol. 12(15), pages 1-21, July.

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