ON SOLAR ENERGY ECONOMICS: A MODEL FOR EVALUATING THE COSTS AND BENEFITS OF SOLAR HOME HEATIN

Though the models used for evaluating the economic feasibility of solar home heating are becoming more sophisticated, solar energy economics is still relatively new and much work remains to be done. Specifically, economic models should attempt to evaluate the optimal mix of conventional, conservation, and solar heating inputs. The intent of this thesis is to develop a general model capable of determining this optimal mixture.;The model presented in this thesis is a general model for evaluating the costs and benefits of alternative heating sources because the optimality condition does not vary with regional variations in prices and climate. By employing the Kuhn-Tucker cost minimization conditions, one may determine, for any locale, that combination of conservation investment and solar and conventional heating components that will satisfy the homeowner's desired heating load for the minimum lifetime cost.;The model explicitly introduces a revenue function and marginal conditions. It is advantageous to introduce a revenue function because it is likely that the homeowner's solar investment decision will depend not just on the cost of the system, but also upon the revenues derived from the investment. Using marginal conditions in the analysis is beneficial because marginal criteria are preferable to total or average cost conditions as a decision-making criterion.;The costs of conservation are also explicitly introduced into the analysis. Many previous studies have assumed that an adequate level of conservation exists and, therefore, have not included conservation costs in the solar cost function. The implication of this assumption is that the benefits provided by increasing the amount of insulation are costless, though they are not. Explicitly including these costs in the analysis allows one to compare the costs against the benefits and, therefore, determine an optimal level of conservation investment.;The optimal mixture of conservation, solar, and conventional inputs to the heating system is dependent upon the values one assumes for the parameters. It is demonstrated in this thesis that the variation in the optimal solar fraction resulting from a change in the assumed parameter values is determined by the relative effects such changes have on both costs and benefits. It is also demonstrated that the predicted change in the optimal solar fraction is independent of regional variations in prices and climate.;The empirical analysis validates the theory. It is shown that the general optimality condition is invariant across cities, but that the specific heating design that solves the minimization problem will vary. This is because the costs and benefits associated with a given system will vary across regions. Of the four cities chosen for the study, only Boston and Denver have common optimized systems, while Los Angeles and Portland differ from Boston and Denver and each other.;Various government policies are used to encourage the use of solar heating and conservation investment. The costs and benefits of some of the policies are examined in the final chapter. It is determined that the conservation subsidy is the least costly in terms of dollars per barrel saved. It is also found to be an efficient policy instrument since the cost per barrel equivalent saved is substantially less than the current market price of a barrel of crude.;It is noted that, if further decreases in the consumption of conventional fuels are desired, it may be less costly to increase the solar tax investment credit allowance than to use a low-interest loan subsidy. However, it is also noted that these costs per barrel equivalent saved vary across regions and, therefore, one national policy may not be as efficient as regional conservation policies.