There are several major economic barriers that can prevent widespread adoption of solar energy systems, especially for residential homeowners. These include the high upfront cost of installation, lack of access to affordable financing options, uncertainty around return on investment timelines, and insufficient financial incentives. Well-designed policy interventions by governments at both the state/provincial and national levels have proven effective in many countries at addressing these economic challenges.
One of the key barriers is the high upfront capital cost required to install a residential solar energy system, which can range from $10,000 to $25,000 or more depending on the size of the system. This large initial investment presents a significant hurdle for many homeowners. States and provinces have overcome this by implementing robust solar rebate programs. Rebates directly lower the upfront costs by providing payments to homeowners of $1-5 per watt of installed solar capacity. Some jurisdictions like California have offered rebates as high as $3-4 per watt, meaning a 5 kW system could qualify for $15,000-$20,000 in rebates. This brings the effective cost much lower and within reach of more homeowners.
Access to low-cost financing is another economic barrier, as the large upfront costs are difficult for many to pay outright. States have addressed this through Property Assessed Clean Energy (PACE) financing programs. PACE loans allow homeowners to finance 100% of installation costs through their property taxes, with the loan transferred to future owners upon sale. It lengthens the payback period to 20+ years at very low interest rates of 4-6%, making monthly payments much more affordable. Over 30 states have now established PACE programs.
Governments have also implemented net metering policies that provide credits to homeowners for excess power generated and fed back into the grid. This significantly enhances the projected return on investment timelines for a residential system. Without net metering, the payback period could be 15-25 years which is a major deterrent. With net metering policies, homeowners see paybacks of 7-12 years on average depending on local electricity rates, using solar to dramatically lower their electricity costs over the lifetime of the system.
Further, the federal government and many states supplement these programs with valuable solar tax credits that offset 30% of installation costs. The federal investment tax credit has been a huge factor driving the sharp decrease in solar prices over the past decade. Extending these tax credits provides market certainty to installers and homeowners. Some states have gone a step beyond with programs like California’s Emerging Renewables Program that provides additional incentives for newly built homes to come with solar already installed at reduced costs.
When crafting effective policy interventions, it is important governments coordinate efforts across rebates, low-cost financing programs, net metering, and tax credits to achieve maximum economic benefits for homeowners. Evidence clearly shows the cumulative impact of layering various incentive policies together is much greater than any one policy in isolation. For example, combining a rebate with a low-interest PACE loan and net metering credits can bring the effective upfront costs and payback timelines into very affordable ranges for median income households.
By strategically aligning these supportive policies, many jurisdictions across Europe and in places like California, Massachusetts, and New Jersey have succeeded in making residential solar the economically rational choice for a large percentage of homeowners. In the process, they have spurred huge growth in local solar markets that created tens of thousands of jobs and cemented their states’ positions as leaders in the burgeoning clean energy economy. Sustaining these programs is crucial for continued market expansion towards the eventual goal of solar achieving unaided grid parity without subsidies. Increasing worldwide action on climate change will also further strengthen the business case for renewable power investments like residential solar with avoided health and environmental costs factored in. Well-coordinated policy interventions at multiple levels of government have proven highly effective methods for overcoming economic barriers confronting solar energy adoption by households around barriers.