Yes – and state policies could be doing more to fix it.
American states subsidize residential investments in solar panels, and in doing so they subsidize the people who buy them. If only high-income households are investing in solar panels and only those who invest are taking advantage of the subsidies, government support for solar panel investment doubles as government support for high-income households.
For the purposes of this blog, “high-income” is defined as an annual household income of over $150,000. This is more than double the national median household income, and can be un-controversially used here.
The bottom line is that between 2011 and 2017, across all 50 states in America, rich households had a statistically significant positive effect on the number of households with residential solar in a state and the amount of residential solar capacity built in a state. Below this income threshold, the marginal household added statistically insignificant or negative amounts of solar prosumers and capacity. The single exception to this trend was the lowest income group. The model in this paper showed households making less than $15,000 annually made significant positive contributions toward the amount of capacity and prosumers in their state. This is a perplexing result, and one that deserves further study. It is possible that a statistical model which tried to explain the relationship between high-income households and solar investment does a poor job of examining the very different case of households with 1/10th the income of the group this study was most closely designed to examine.
What does become clear from the results of this study is that high-income households buy in to solar in a way that middle-income households in all the groups between $15,000- and $150,000 do not.
Assuming for now that the low-income group is presenting anomalous results, the difference between high and middle income investment rates in solar could potentially be explained by net metering policies. An average solar panel costs about $5,000 per kW to install. At an average size of 5-6 kW per household, solar panels become a serious capital investment. While $25,000 costs a high income household no more than 1/6th of its annual income, it can equal or exceed the annual income of low or middle income households. Even if they made the decision to lease these panels, the upfront costs are still dramatic.
Fortunately for the households who can afford to invest in them, the panels could pay themselves off in 5-15 years due to volumetric subsidies like net metering. These policies essentially let the owners of solar panels sell their power back onto the electric grid for retail price instead of the wholesale price after they have negated all their own usage in a given billing period.
A solar investment model that pairs large upfront costs with government-supported production subsidies that pay back well over time is a formula for barring all but the rich from entry. Given the amounts of money involved, even a handsome return on investment could not entice a household to invest if it needs the same money for survival. This issue is somewhat reduced by the practice of leasing solar panels, though that alone does not obviate the cost issue.
In light of a widespread subsidy system that does not encourage low-income access to solar panels, what alternatives are available to state governments? A few options present themselves as alternatives to the volumetric approach. The first is a rebate. Shifting the time of the subsidy payment to match the time of the investment it is supposed to subsidy helps to reduce the group of people who would invest but are prevented by large upfront costs. The rebate retains many of the policy benefits of residential solar; it is distributed and thus delays necessary distribution investments, it is green and thus offsets fossil fuels, and it puts extra generation capacity online which may help to delay the need for new centralized generation.
Demand management programs that encourage users to shift their use away from peak usage can also prevent generation and distribution upgrade costs. One example would be a shift towards Time of Use Pricing, which rewards users who shift their demand to not coincide with “surge pricing.” Because demand management is an option that can be made usable for everyone, issues of the poor subsidizing the rich are avoided with this approach.
The government can also pass a renewable portfolio standard to increase green energy production, but this does not prevent the bills for new generation and distribution. Here, the public still benefits from avoiding fossil fuels but no residential electricity consumer is subsidized to produce. This shift towards centralized renewable energy production trades off the costs of grid upgrades for the benefits of equity.
In reality, the equity problems of solar subsidies will likely never be overcome. That does not mean, however, that the imbalance cannot be improved through some combination of the approaches listed above. Every state will face different policy challenges related to residential solar over time, but making equity a consistent priority has the potential to shift the way policymakers think about subsidies.
Credit to the Brookings Institution and ILSR for visualizations.
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