The Sunshine Effects on Solar Loan Repayments

Solar loans are increasingly used to promote residential solar photovoltaic expansion. However, a critical problem with financing residential solar energy is the high default rate. This paper studies the psychological effects of sunshine on borrowers’ repayment behaviors. Using administrative datasets from China, we show that borrowers are 20.8 percent less likely to be delinquent if the sunshine duration is one standard deviation longer in the week of repayment deadline. The evidence is most consistent with behavioral bias that borrowers mispredict future revenue based on the current weather conditions. Other explanations such as intertemporal substitution, liquidity constraints, strategic default, or moods are less consistent with the evidence. Furthermore, borrowers partially learn from past experiences. We highlight the importance of psychological factors in loan design, particularly in the renewable energy sector.