Residential rooftop solar demand in the U.S. and the impact of net energy metering and electricity prices

Abstract

We use a panel dataset of residential rooftop solar adoption for 27 states from 2008 to 2018 to estimate demand for rooftop solar and the impact of net energy metering compensation. We find demand is highly price elastic and that income is elastic as well. We find a large cross-price effect with respect to residential electricity price indicating that rooftop solar is a strong substitute for utility-provided electricity driven, in part, by poor residential rate design that primarily recovers fixed system costs through volumetric charges. We find that net energy metering has a large positive impact on the demand for residential rooftop solar, resulting in at least a doubling of demand and in uneconomic customer bypass of utility-supplied electricity, as net energy metering is not a market-based compensation rate. Our analysis lends support to ongoing state policy efforts to reform net energy metering and to improve electricity rate design.