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Jack Fuller and Steven Richmond,
“Modes of Electricity Generation, Delivery Systems, and the Role of Trust in Creating Solar Photovoltaic (PV) Markets,”
Volume 38, Number 2
MODES OF ELECTRICITY GENERATION, DELIVERY SYSTEMS, AND THE ROLE OF TRUST IN CREATING SOLAR PHOTOVOLTAIC (PV) MARKETS
Jack Fuller and Steven Richmond*
Market Creation, Adoption Barriers, and Policy Solutions he solar photovoltaic (PV) sector of the electricity market in the United States in its current form is a creation of the federal and state governments. In contrast to markets that evolve organically, the solar PV sector relies on government price supports and regulations to influence sales. The solar PV sector was created for political reasons—plain and simple. The main justifications have been environmental protection and energy independence.1 These reasons have been borne out in practice, evidenced by the great deal of activity regarding utility regulations at the state level mandating increased electricity production using alternative and renewable resources. These measures, called energy portfolio
*Jack A. Fuller, Professor of Decision Analysis and Operations Management, College of Business and Economics, West Virginia University (Morgantown), earned an undergraduate degree in electrical engineering from Iowa State University, a master’s in business administration from the University of Iowa, and a Ph.D. in the same field from the University of Arkansas. Earlier, the author held teaching and administrative positions at California State University, Los Angeles, University of Oklahoma, and University of Northern Iowa and has served as a consultant for the U.S. Department of Energy, Ashland Coal, Inc., and West Virginia Re-Refining, Ltd., among others. His articles have appeared in The Journal of Energy Resources Technology, The Journal of Energy Engineering, The Business Review, The Journal of Business and Economics Research, The Energy Journal, and Energy Studies Review, as a sampling. Steven Richmond, who works on data cleansing and analysis projects at Bayer MaterialScience, earned his B.A. in political science from the University of Pittsburgh, a M.A. in political science from West Virginia University, and a M.S. in industrial relations from West Virginia University. The Journal of Energy and Development, Vol. 38, Nos. 1 and 2 Copyright Ó 2013 by the International Research Center for Energy and Economic Development (ICEED). All rights reserved.
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standards (EPS) policies, have created the potential demand for solar PV products and services. The introduction of solar technologies into the broader electricity market faces several barriers. They can be classified into one of three basic categories: technical, economic, and institutional.2 Since the solar PV sector is an artificial government creation, finding remedies to some of these barriers is a matter of policy making and implementation. Table 1 shows some of the commonly recognized barriers, their specific problems, and the associated policy solutions. There is evidence that research and development have made solar panels more effective, tax credits are widely available to mitigate the costs associated with PV adoption, and EPS policies are the most common type of regulation in the solar PV sector.3 So, why have solar PV systems not captured a larger share of America’s electricity market? It is because the policy framework that supports the solar market ignores a very large and important group of stakeholders—the individual homeowner. There are two topics that have been mysteriously absent from the literature on solar PV adoption. First of all, no one has addressed sufficiently whether solar PV technology is better suited for traditional power delivery systems or a wide network of private, residential owners. Second, the current set of regulatory policies is not designed to protect individuals who would integrate PV technologies into their homes and property. In this essay, an argument will be presented for the network model of solar PV integration, suggest an appropriate legal basis for the ownership of solar PV systems, and recommend a direction for future empirical studies.
The Traditional Model versus the Network Model When Americans think about where electricity comes from, they envision a power plant somewhere outside of town that sends energy to their homes through a pathway of wires. Whether or not people are aware of it, they have been conditioned to understand power delivery systems this way through public education, news, politics, and hands-on experience. The traditional model looks like figure 1. Table 1
SOLAR PHOTOVOLTAIC (PV) SECTOR: BARRIERS, PROBLEMS, AND POLICY RESPONSES Barrier Technical Economic Institutional Problem Inefficient technology Material and installation costs Lack of technology adoption Policy Response Research grants Tax credits Energy portfolio standards (EPS) policy
relying less on a large power source by . EPS policies interfere with the traditional model of energy delivery systems. Even though solar PV technology does not fit into traditional power delivery systems. State governments take a great interest in utility companies because electricity production and delivery have a value to customers beyond dollar figures. The system is more decentralized. life. they will inevitably have to rely on new clean energy technologies. making them the best fit for a delivery model with large production facilities as a central feature.4 Their data showed that one gigawatt hour (GWh) of electricity produced by a solar installation cost about $870.000 more than one GWh of electricity produced by a wind installation.CREATING SOLAR PHOTOVOLTAIC MARKETS Figure 1 TRADITIONAL POWER DELIVERY SYSTEM 149 This power delivery system is highly structured and is the end result of private utility companies investing extremely large amounts of capital to create the existing infrastructure. A power network turns the idea of a traditional power delivery model on its head. it is integral to the social and economic fabric of U. it still has the potential for successful adoption in other systems. or large installations of centrally controlled solar panels. The United States Treasury Department tracked the amount of money they loaned out for renewable energy generation and the subsequent amount of electricity produced in each type of installation. One must then ask the question: how do these new technologies fit in with the existing power delivery infrastructure? Solar farms. The ability for utilities to monopolize entire regional markets and set prices has led to their regulation by a public service commission operating within a state’s bureaucracy. Since utilities must produce a certain percentage of their electricity with alternative and renewable resources in accordance with these laws. Not surprisingly. the decision between solar and wind power as the clean technology of choice is a simple matter of economics.S. utilities have become extremely powerful businesses and institutions. are far more expensive than wind farms that use large wind turbines to produce electricity. Wind farms produce more electricity at a cheaper price. If one continues to think about power delivery systems in the traditional way. PV technology is far better suited to a decentralized power network that spreads the high cost of solar installations among a wide network of individual owners. The individual owner can realize the economic benefit of becoming an electricity producer if they are willing to take on the risk of making the initial investment.
First.150 THE JOURNAL OF ENERGY AND DEVELOPMENT incorporating a multitude of small energy-producing units that are all connected via the existing power grid. which is a sharp contrast to fossil fuel-burning power plants. Of course. it is sent out into the power grid for consumption in other places. the electricity produced is 100 percent clean. the better it will be for the environment. Wind farms and hydroelectric sources of energy are great because they do not produce emissions. Implication 2: It Reduces the Demand for Electricity on Large Plants: The more clean energy that gets introduced into the grid. it changes the model by allowing for the two-way travel of electricity instead of a straight downstream pathway that was a hallmark of the traditional power delivery system. This may seem obvious but it has three important implications as outlined in table 2. These larger sources of clean energy fit better into traditional energy delivery systems. The more clean energy the United States produces. a power network for making energy Figure 2 POWER NETWORK MODEL . When individual units produce excess electricity. Second. The power network looks like figure 2. natural power that remains almost completely untapped. Of all modes of electricity production in the United States. While these plants cannot be eliminated overnight. anything that mitigates their use will contribute toward the goal of reducing harmful emissions. When one adds solar production units to the traditional power delivery model. Implication 1: It Harnesses Energy That Would Otherwise Be Wasted: Solar energy is a never-ending source of clean. but they also do not fit on the roof of a house. the less energy must be produced at fossil fuel-burning power plants. There are two compelling reasons to expand our solar collection capabilities via private residences. solar power only accounts for 1 percent of all power generation. there is no other technology that can make use of residential roof space like solar PV panels.
(This paper will return to the idea of successful widespread adoption later.’’6 This statement reminds us that our legal system creates a basis for wealth generation and confidence in markets. They travel through law as social contracts manifested in law. cite the fact that research shows people are twice as likely to avoid losses as they are to seek gains. Risk Aversion. which is what has made electricity production such a lucrative and monopolistic business venture. . then they must do something to mitigate the risk involved for CPs entering this sector of the energy market. Economist Hernando De Soto said that ‘‘Value and truth . If they are not formalized by law. otherwise. Certo et al. do not travel physically. They begin to think about how much risk they are willing to take and what the return on their investment will be. their mindset changes in a very important way. In application to the solar power network. simply called risk aversion. and Trust Consumer-producers (referred to as CPs in this paper) need to be able to ensure that their technology investments will retain their value and produce a continuous benefit. this means that the lack of legal . policies should address the needs of individual consumer-producers. they will have gone into business for themselves. S. they remain beliefs. In order to achieve widespread adoption of solar PV technology.) Implication 3: It Changes the Nature of the Consumer-Producer Relationship: The traditional power delivery model has one producer and many consumers. and the power delivery model remains essentially unchanged. Once someone stops solely consuming a product and becomes a producer.CREATING SOLAR PHOTOVOLTAIC MARKETS Table 2 IMPLICATIONS OF POWER NETWORK DESIGN 1) It harnesses an energy resource that goes untapped 2) It reduces the demand on large plants for electricity 3) It changes the nature of the producer-consumer relationship 151 production cleaner is only as useful as the number of people who will adopt solar PV technologies and connect with the grid. If only a handful of people adopt the technology. Investors of all kinds can be subject to this kind of bias in their decision making.5 If state governments want people to buy and install solar PV systems. . they will not be interested in purchasing solar PV equipment and incurring the associated costs. When consumers begin using solar PV panels to produce their own electricity and sell it. This is perhaps the most interesting and most overlooked feature of the power network concept. it has relatively no positive impact on the environment. Consumer-Producers.
They create the rules of commerce so that business transaction outcomes are predictable and.152 THE JOURNAL OF ENERGY AND DEVELOPMENT structure has left people without the proper tools to do business. Even though a contractor may seem trustworthy. The institutional trust literature tells us that safeguards can be built into our institutions to create trust (or at the least hedge against distrust) between parties in the absence of interpersonal relationships. safeguards need to be built into our institutions to establish trust on two fronts. Building codes. Second. then solar PV technology will not be widely adopted by CPs in a solar power network. These legal safeguards are commonly looked upon as a nuisance that create unnecessary soft costs. in turn. Gaps in permitting and inspection processes are two main reasons that a large amount of risk still exists in the PV sector. certified installers. ease the fears of risk-adverse investors. Specifically. In the case of CPs. and inspectors provide a legal basis for PV system buyers to recoup their losses if a system is incorrectly installed or causes damage to the property to which the PV system was attached. CPs operating in a capitalist market need the confidence that their investment will work properly. and access laws for general contracting are a part of every state’s legal configuration. inspection practices. Hypotheses A set of hypotheses that could be used to test the importance of trust as a deciding factor for CPs choosing to enter the solar PV sector will now be considered. there have to be installation standards that assure PV system owners will receive a working product. they serve a quite necessary purpose. it is believed that CPs operating in a capitalist system will want proper legal documentation and clearance to be satisfied that their investment is safe. a PV system owner must be confident that they will have continued access to their solar resource. Building code standards. First.8 Judges act as enforcers of this trust provision by determining the winner access disputes based upon the set of rules that was created by legislators. This can be secured through access provisions called solar rights laws.7 Institutional trust models have been used to explain the adoption of technology in the information systems field and could prove useful for the study of solar PV adoption. It is odd that policy makers have created a solar market sector based on EPS laws and have not drawn obvious lessons about trust creation from existing. The concept that these hypotheses . On the contrary. they are representations of either the existence or degree of four regulatory policies. if there is skepticism regarding the legal requirements of installers. which vary on how much protection they provide the PV system owner. All in all. organically formed markets. The independent variables are all based on indicators of trust that have been identified in this research paper.
Finally. Therefore. areas that have stronger solar rights laws should exhibit higher rates of PV system adoption among CPs. H4: The Relationship between the Strength of Solar Rights Laws (x) and Solar PV Installation Rates (y) Is Positive. one would expect to find that areas with established solar building code standards will have higher rates of PV system adoption among CPs. but this is an exception to the norm. H3: The Relationship between the Existence of Inspection Procedures (x) and Solar PV Installation Rates (y) Is Positive. H1: The Relationship between the Existence of Solar Building Code Standards (x) and Solar PV Installation Rates (y) Is Positive: There are building codes that already regulate general contractors when they build or modify a home.CREATING SOLAR PHOTOVOLTAIC MARKETS 153 are designed to test is quite simple: increased legislatively created trust mechanisms will result in higher PV system adoption by CPs. Inspectors have the important job of enforcing the building code standards. . etc. roofs do not collapse. Solar building code standards would perform the same function in the PV sector. in areas that have a formal inspection policy. There are base-line protections that prevent homeowners’ associations and neighborhood committees from passing covenants banning solar PV systems. Taking solar rights law as a trust-creating mechanism. there are solar rights laws that set solar access as the base-line and others must seek easements to infringe upon that solar access. H2: The Relationship between the Existence of Permitting Systems (x) and Solar PV Installation Rates (y) Is Positive. but they do not ensure that installers follow those plans. the contractor has the responsibility to fix it. This means that people can apply for rights to solar access. As a result. The plan must be approved by a government agency before it is executed. Each hypothesis will now be formally stated and explained. Inspection procedures serve as a back-end protection for CPs. one would expect to see higher rates of PV system adoption among CPs. These standards are designed to ensure that basements do not flood. The process of obtaining building permits requires that there be a formal plan reflecting a consideration of building code standards. Solar rights laws come in three main forms. Third party oversight by the government creates security for the CP by ensuring that installers are following the standards that have been set forth in the name of consumer protection. they bring the consumer protection laws full circle. Building codes and permitting systems are designed to make sure plans for installation are reasonable. one would expect to find that areas with established permitting procedures will have higher rates of PV system adoption among CPs. People trust contractors to build and modify their homes because they know if the proper standards are not followed. Therefore. Another weak solar rights tool comes in the form of solar easements.
Bahmanziari et al. then the results cannot be generalized. The second challenge is the high likelihood of multi-collinearity between the explanatory variables in H1. Solar PV systems are not capable of competing with wind and hydro sources of electricity as a replacement for traditional power plants. Second. Finally. this model may indicate a consumer’s intentions. H2. introduced a technology adoption model based on trust. Conclusions In the vast body of literature devoted to solar technology adoption. there is an issue of reporting bias. There are two key challenges that arise with the regression analysis just proposed. these trust constructs take the form of government regulations. In this research. The existence of trust-creating legal constructs is available. which would limit one’s ability to determine the effects of individual variables on solar PV adoption. regression methods could be used to determine the relationship between the variables. First. Some people may choose answers based on how they think they will be perceived rather than letting preference dictate their responses. Each of these trust mechanisms works in conjunction with the others to create consumer trust.9 The model assesses whether or not certain trust constructs influence a consumer’s intentions to buy a product. and H3. but this does not mean that they will act on those feelings. one could survey the agency responsible for regulating utilities in each state to determine the number of individuals that applied and were accepted for interconnection to the power grid. there is a severe lack of discussion about trust and its effect on the market. The first challenge lies in the fact that the data needed for these regressions are not readily available. If the sample is not representative of the population. but the number of solar PV installations each year on private homes has not yet been collected. In order to find this data. First. The data for a choice model analysis comes from survey responses that create a cause for concern from the start. . Another potential method of determining the effect trust creating mechanisms might have on technology adoption is choice modeling. it is important that the samples chosen for the survey reflect the larger population. T. Legislators have failed to take into account the difference between a potential solar PV power network and traditional modes of electricity generation and delivery. They are particularly suited for integration into a decentralized power network. The subsidies and regulations that are already commonplace in our legal framework are necessary but not sufficient for developing the PV sector to its full potential.154 THE JOURNAL OF ENERGY AND DEVELOPMENT Advice for Future Research There are two potential ways of testing these hypotheses. More specifically. probit models could be employed for hypotheses 1 through 3 and a logit model could be used for hypothesis 4.
‘‘Technology Improves Solar PV Competitiveness. Trevis Certo. no. and Database of State Incentives for Renewables and Efficiency (DSIRE). S.’’ Renewable and Sustainable Energy Reviews. ‘‘Collective Action and Citizen Responses to Global Warming. In time. no. 89. D.’’ Political Behavior. pp.aspx. regulatory structures are a significant factor in the decision of CPs to adopt solar PV technology for their homes. ‘‘Energy Supply. Mark Lubell.C. pp.’’ Washington. ‘‘Solar Energy: Markets. ‘‘Incentives/Policies for Renewables and Efficiency.’’ Energy Policy. 449–65. and Arnold Vedlitz. Asif and T. and R.cfm?EE=1&RE=1&SPV=0&ST=0&technology=all_solar&sh=1. Kevin Chen. ‘‘Managers and Their Not-So-Rational Decisions.’’ Business Horizons. pp. and M. Expanded legal structures should include building codes. no. and solar rights. state governments must establish the proper regulations.org/ incentives/index. vol. 11. 13 (2005). North Carolina.gov/initiatives/recovery/Pages/1603. Rosenstreich. pp. vol. and Laszlo Tihanyi. 1388–413. 1 (2012). available at http://www. 29. 48. 2 (2011) p. Brian L. Lado Kurdgelashvili. Department of the Treasury. vol. Raviv. 33. North Carolina Solar Center at North Carolina State University. 3 (2007). no. installation inspections. ‘‘Using Solar Energy to Arrest the Increasing Rate of Fossil-Fuel Consumption: The Southwestern States of the USA as Case Studies. 35. Sammy Zahran. 2012. and Patrick A. pp.S. 2008).dsireusa.. no. they will require more regulation to create a market with less ambiguity and risk. 1745–752.CREATING SOLAR PHOTOVOLTAIC MARKETS 155 The development of a power network will lead to a change in the consumerproducer relationship in current power delivery systems. Nakao Cavaliero. vol. In particular. 51 (March 1. vol. ‘‘Electricity Generation: Regulatory Mechanisms to Incentive Renewable Alternative Energy Sources in Brazil. gathering the data and carrying out these studies should reveal that trust-building. Economics and Policies. vol.’’ Raleigh. 113–19. 567–76. D. Muneer.treasury. U. available at http://www. pp. NOTES Carla Kazue. and Ennio Peres Da Silva. Some possible methods have been suggested here to carry out this research and some ways to gather the missing data for these studies. The link between trust mechanisms in the solar PV sector and higher rates of technology adoption still needs to be tested empirically to determine the strength of the effect and validity of the proposed measures. permitting. they need to be able to trust the people with whom they are doing business. 7 (2007). Connelly. Govinda Timilsina. In short. ‘‘Section 1603 Status. 1 (2007). D. Since capitalist systems evaluate trust and risk through third party institutions. January 2012. 5 4 3 2 1 . Narbel. 391–413. no. no.’’ Energy Policy. 16.’’ Renewable and Sustainable Energy Reviews. Its Demand and Security Issues for Developed and Emerging Economies. It has been hypothesized in this research paper that when consumers also become producers. regulations need to address things that are important to CPs instead of aiming legislation toward utility companies.’’ Electric Light & Power. Faiman.
Shapiro. ‘‘Building Effective Online Marketplaces with Institution Based Trust. 27. (2004).’’ The Journal of Computer Information Systems.’’ Information Systems Research. no.’’ American Journal of Sociology. 3 (2005). 89 (September 26.156 THE JOURNAL OF ENERGY AND DEVELOPMENT 6 Hernando de Soto. 4 (2003). 623–58. no.’’ Boston University Law Review. 9 Tammy Bahmanziari. 3 (1987). and Paul A. ‘‘Solar Rights. 467–82. 15. 46–54. vol. 1. pp. 1217. Susan P. vol. and Leon Crosby. People and Prosperity: Address to the Houston World Affairs Council. ‘‘The Social Control of Impersonal Trust. 2009). pp. ‘‘Property. p. vol. no. 43.’’ Houston Journal of International Law. vol. pp. 8 7 Sara Bronin. J. vol. ‘‘Is Trust Important in Technology Adoption? A Policy Capturing Approach. no. 93. Pavlou and David Gefen. 37–59. Michael Pearson. . pp.
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