The Sharing Economy for Residential Solar Generation

Abstract

This paper studies rooftop solar photovoltaic (PV) investment decisions of households. Two cases are considered: (a) the status quo of net-metering, and (b) a new sharing economy model. Under net-metering, households can sell back their excess generation to the utility at their retail tariff subject to the prevalent constraint that they cannot be net producers of electricity on an annual basis. In our sharing economy model, households can pool their excess PV generation and trade it in a spot market among themselves, but the collective cannot sell electricity back to the utility. Our objective in studying these two cases is that net-metering programs are under threat and being phased out, which places future residential PV investment at risk. In the event of this contingency, we argue that the sharing economy model offers a pathway to preserve and even accelerate residential PV investment. We derive expressions for the optimal investment decisions in each case assuming that households are rational and wish to minimize their costs. We characterize the random clearing price in the spot market for excess PV generation under the sharing model. We show that the optimal investment decisions are determined by a simple threshold policy. Households whose PV productivity metric exceeds this threshold invest the maximum possible, while those that fall below the threshold do not invest. We offer a convergent algorithm to compute this threshold. We close with a small-scale simulation study that reveals the favorable properties of the sharing economy model for residential PV investments.