Working Paper: CEPR ID: DP12517
Authors: Nicola Pavanini; Fabian Feger; Doina Radulescu
Abstract: An increasing number of households installing solar panels and consuming the energy thus produced raises two challenges for regulators: network financing and vertical equity. We propose alternative tariff and subsidy designs for policymakers to incentivise solar panel adoptions and guarantee that network costs are recovered, while trading off efficiency, equity, and welfare motives. We estimate a structural model of energy demand and solar panel adoption, using a unique matched dataset on energy consumption, prices, income, wealth, solar panel installations, and building characteristics for 165,000 households in Switzerland from 2008-2014. Our counterfactuals recommend the optimal solar panel installation cost subsidies and two-part energy tariffs to achieve a solar energy target. We show that, relative to installation cost subsidies, relying on marginal prices to incentivise solar panel adoptions is more cost efficient and progressive across the income distribution, but generates a larger aggregate welfare loss.
Keywords: Energy; Photovoltaics; Income Distribution; Welfare; RDD; Structural Estimation
JEL Codes: D12; D31; L94; L98; Q42; Q52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| marginal prices (D40) | solar panel adoption (Q48) |
| installation cost subsidies (H23) | solar panel adoption (Q48) |
| installation cost subsidies (H23) | higher fixed fees or marginal prices (D40) |
| marginal prices (D40) | financing tool for network costs (G32) |
| marginal prices (D40) | aggregate welfare loss (E10) |