Solar energy and behavioral economics: the Solar City case

Abstract

Distributed solar energy plays a prominent role in the current energy transition process. There are, however, factors that may limit the expansion speed in adoption of solar energy. One first factor has to do with the lack of financial capacity to acquire the photovoltaic system. A second factor is related to consumers´ rationality in decision making. Classical economists assume rationality as the standard decision making behavior. Behavioral economists have provided evidence, however, of the occurrence of systematic and predictable behavioral biases in judgment and decision making. This research addresses the case of the company SolarCity, leader in the distributed solar market in the USA between 2010 and 2016. The goal of the study is to identify possible behavioral barriers to the diffusion process in the adoption of solar photovoltaic systems and to evaluate the effectiveness of the business model implemented by the company in neutralizing these barriers. The SolarCity business model, with the strategy of creating solar communities and adopting a monthly payment structure, has proved to be consistent with two types of intervention to neutralize these barriers: the use of social influences and mechanisms to neutralize the present bias and aversion to losses.