Getting More of Something Without Subsidizing It: Impact of Time-of-Use Electricity Pricing on Residential Energy Efficiency and Solar Panel Adoption

Abstract

This paper provides the first empirical evidence of the impact of Time-Of-Use (TOU) electricity pricing on the adoption of energy efficient appliances and solar panels. A theoretical model is constructed to show that TOU customers have a larger incentive to adopt these technologies compared to customers on non-dynamic pricing plans. Using household-level data in Phoenix, Arizona from an appliance saturation survey of about 16,000 customers conducted by a major electric utility and relying on propensity score matching and coarsened exact matching to address potential selection bias, empirical results show that TOU consumers are 27% more likely to install solar panels but not more likely to adopt energy-efficient air conditioning. The findings highlight that TOU can act as a cost-effective policy instrument to facilitate solar panel adoption, compared to other more costly instruments with a similar magnitude of impacts such as tax credits or rebates of $2,070~$10,472.