MAINSTREAMING RESIDENTIAL SOLAR PHOTOVOLTAIC ADOPTION IN THE UNITED STATES: DRIVERS, TIMING AND THE PRIVATE SECTOR

Abstract

A central question of this research report is whether households will lead a major change in the way electricity is generated and used in the United States. The residential sector is the largest consumer of electricity generated and accounts for 39% of consumption and 21% of CO2 emissions. Unlike coal, solar does not deplete a fuel source nor contribute to emissions in the process of generating electricity. Scholars have shown the resource scale of solar is orders of magnitude greater than fossil fuels. Yet, solar photovoltaics (PV) have suffered from considerably less research and development and resultant higher costs relative to fossil fuel generation. This report analyzes the rapidly changing and emerging market of distributed, behind-the-meter generation of solar PV electricity for households with a focus on timing, drivers, and private sector strategies. Methods include a literature review, fieldwork, and a primary research survey instrument administered to 73 renewable energy professionals of varying backgrounds in the spring of 2012. Industry trend data and survey opinion confirm that dropping residential PV costs, increasing PV efficiency and a wider array of financing options are the main drivers of adoption. Technological limitations or regional solar capacity in the U.S. are not limiting factors overall. Although installed costs vary greatly by location, residential PV installed costs have dropped exponentially from $9.7 per watt in 2000 to an average of $6.2 per watt in 2010 before any federal, state or local incentives. Some markets now show installed residential PV costs of $5 per watt. A critical tool for evaluating residential PV systems is the monthly cost of financing relative to monthly utility bill savings from the grid, rather than the often cited levelized-cost-of-energy (LCOE). Companies with expanded financing options such as PV lease and power purchase agreements (PPA) are currently leading installations by demonstrating immediate monthly cash flow savings and utilizing a turnkey service model. Policy comparisons are made between California, New Jersey and Texas. California and New Jersey lead PV installations with commensurate policy support and financial incentives, while Texas by contrast has much less PV installation and relatively little policy support. Federal and state financial incentives are reviewed including tax credits and cash rebates; as well as the role of other incentives such as net metering, system benefit charges, and solar renewable energy credits. Though not widely used, a 0% interest financing option may produce immediate monthly utility savings and serve as another financing tool. Based on installation and cost trends, incentives are working by supporting growth, reducing payback times by nearly 50%, and closing the cost gap between PV and conventional power. Diffusion models, growth trends and tipping points relative to residential PV growth are analyzed. Residential PV installed capacity shows 49% compounded annual growth (CAGR), growing from 27 megawatts (MW) installed in 2005 to 297 MW as of 2011. Based on approximately 250,000 known residential installations, market penetration is approximately 0.3% - a surprisingly low number. Seventy percent of survey professionals indicate residential PV will shift from innovator to early adopter stage and achieve at least 10% market penetration and reach retail grid parity in most markets within 10 years. To reach 10% of the estimated U.S. single family home market will require approximately 41% CAGR for 10 years or 19% CAGR for 20 years. When analyzing concepts of grid parity and levelized-cost-of-energy (LCOE), assumptions and definitions must be clearly stated while noting subsidies and externalities. Leading policy, practice and opinion indicate the following are essential to mainstreaming: 1) fund federal and state financial incentives for 10 years, 2) support lease, PPA and other financing models 3) set installation goals like state Renewable Portfolio Standards (RPS), 4) continue government support for research and development, and 5) increase awareness and education of the benefits of residential PV.