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Three Essays on the Financial Returns to Residential Solar PV Adoption

As the effects of climate change continue to accelerate, threatening human life and the environment worldwide, the need to decarbonize our energy system is urgent and imperative. Solar photovoltaic (PV) technology is an important component of the United States’ decarbonization strategy. Solar diffusion policies like net metering, tax incentives, and renewable energy certificates create financial value for adopters. Evaluations of those policies tend to focus on adoption as the primary metric of success: more households adopting solar means less reliance on fossil fuels and fewer carbon emissions. However, adoption alone as a success metric fails to account for a policy’s equitability. My research attempts to provide more information on the equity implications of solar policy by answering the following questions: what are the financial benefits of installing solar panels to adopters (direct and indirect), how large are those benefits, and how do those benefits vary by an adopter’s race and income? In Chapter 1, I examine the distribution of financial returns to solar adoption in Massachusetts by system ownership status (leased or owned), income, and race. I find that direct financial returns that accrue to households with owned systems are over 300% higher on average than for leased systems. I also find that neighborhoods with more low-income and non-White households receive lower financial returns compared to other neighborhoods, mostly because these households tend to lease their panels. In Chapter 2, I turn my focus to the indirect financial benefits of solar PV adoption. One type of indirect benefit is the solar home price premium, or the increase in home sales price due to solar panel adoption. I estimate the price premium for solar homes in Massachusetts. I find a price premium ranging from 5.9-12.2% depending on model specification, representing a $14,000-29,000 value for the median-priced home in my data. The solar home price premium appears to be decreasing over time as more households adopt. I also pair demographic data with individual solar households and find a stark underrepresentation of Black, Hispanic, and low-income solar owners. In Chapter 3, I further explore the property value impacts of renewable energy adoption by investigating spillover effects of the solar home price premium. I estimate how a neighbor’s adoption of solar PV affects a non-solar home’s sales price. Using data from Massachusetts and three hedonic models, I find a negative relationship between the number of solar neighbors within one mile of a non-solar home and the non-solar home’s sales price. The negative relationship increases as the radial definition of the “neighborhood” decreases, with a -0.9% effect per solar neighbor within one mile and a -2.5% effect per solar neighbor within one-tenth of a mile. In real terms, this price effect ranges from -$1,908 to -$5,963 per additional solar neighbor for the median-valued home during the study period. This negative price effect may reflect solar PV’s increasing market penetration in Massachusetts, meaning that as adoption becomes more popular, homes without solar PV are at a slight disadvantage in the housing market. Understanding the total financial value of solar adoption and how that value is distributed among groups is important for crafting equitable energy transition policies.