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California Energy Markets / Bottom Lines

[June 2, 2017 / No. 1439]

Taking a Look at Solar Price Dispersion in the U.S.

Prices for solar-photovoltaic systems have dropped 50 percent since 2009, which has helped drive a nearly sixfold increase in residential and nonresidential installed solar capacity in the U.S. But that doesn't mean everyone is paying the same lower prices.

According to a new study from Lawrence Berkeley National Laboratory, people in the same region can pay dramatically different prices for solar, a phenomenon driven partly by access to information about solar systems, solar companies and solar-installation costs. The researchers found these price differences have persisted in the solar industry, even as the industry has matured.

The study, "Sources of Price Dispersion in U.S. Residential Solar Installations", released May 31, homes in on price disparities for solar PV systems, and delves into questions including whether the higher prices some people are paying for solar actually are excluding some people from the market, thereby limiting the benefits of solar.

"From a policy perspective, understanding the reason why prices vary is important for improving the effectiveness and cost-efficiency of policies promoting the adoption of PV," the report said.

California is already a solar leader—solar PV has regularly set records this year on the CAISO grid; in fact, PV just topped 12,000 MW in recent days. On the residential side, homeowners have installed more than 4,000 MW, with much of that through incentives over the past decade under the California Solar Initiative. Programs to drive solar installations for low-income homeowners have proven less successful, having installed just about 55 MW to date. Perhaps the Berkeley Lab report can provide insight for policymakers seeking to further drive low-income programs.

As the study explains, under the economic theory known as the law of one price, homogenous goods should generally sell for a similar price in all locations. Pricedispersion refers to a breach of that law, when the same product sells for varied prices.

Distribution of Installed Solar PV Prices in Largest Markets

Product differentiation—from differences in production costs to distribution costs, demand, market structure, regulations and currency fluctuations, to name a few—can also influence price.

While the researchers—from the University of Wisconsin at Madison, the National Renewable Energy Laboratory, Lawrence Berkeley, Yale University and the University of Texas at Austin—discussed and controlled for product-differentiating factors in the study, they focused on how consumer access to information can affect price dispersion, or the variability in prices in a given county and in a given quarter. They noted that "price dispersion can persist if information remains costly and some consumers choose not to become informed."

As the authors note, buying decisions around solar are complicated: the technology is relatively new, and changing; consumers typically have not had to make capital-investment decisions to secure electricity; changing policies and rate designs play into the value of PV to the consumer; and because PV systems last at least 20 years, there are few repeat solar purchasers.

The researchers found more price dispersion, or a greater variability in solar PV prices, in counties with higher household income and greater installer experience in the county, and less price dispersion in areas featuring many neighbors with PV systems installed, more availability of price quotes, third-party ownership of PV systems, and larger PV-system sizes. Thosefactors contributed to somewhat lower costs for consumers to get information about solar systems.

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The authors concluded that finding ways to reduce the differences in solar pricing within specific counties or regions could have substantial public benefits.

"Unless there is a strong and persistent barrier to entry, reducing price dispersion will lower not raise consumer prices," the authors said.

The study also found that solar pricing is more competitive in solar clusters within a county where consumers can get word-of-mouth information about solar products, installers, and the installation process.

"The results also make clear that pricing is more competitive … in clusters of installations where potential consumers can make use of a trusted and relatively accessible information source, their neighbors," the study said.

"On the one hand, this might suggest that targeting adoption in existing clusters has higher potential to result in low-priced solar," according to the study. "On the other hand, it suggests that establishing new clusters likely needs extra assistance in providing potential consumers with reliable information about installer quality and pricing."

To conduct the study, the researchers reviewed installed PV-system data from 250,000 residential PV systems installed through 59 incentive programs in 34 U.S. states. This information was collected by Lawrence Berkeley researchers as part of the lab's "Tracking the Sun" report series from last year. Thecore analysis was done on systems installed between 2008 and 2014.
-Mavis Scanlon

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