Solar Subsidies Research Articles

Toward an optimal household solar subsidy: A social-technical approach

An analytical framework is developed for integrating the social science into a socio-technical approach for assessing the optimal solar energy subsidy. Estimating the optimal solar subsidy based on the analytical framework takes into account technical environment, health, employment, and electricity accessibility benefits as well as household's prosocial behavior. Results indicate that an optimal subsidy is positively affected by the marginal external benefit; however, this effect is mitigated by the rebound effect based on motivational-crowding theory. Calibrating the model using published elasticities yields estimates of the optimal solar energy subsidy equal to approximately $0.02 per kilowatt-hour when prosocial behavior is omitted. The estimated optimal subsidy is in line with many current state feed-in-tariff rates, which may be the upper bound when social science is not considered in policy analysis.

Pass-Through as a Test for Market Power: An Application to Solar Subsidies

We formalize pass-through over-shifting as a simple yet underutilized test for market power. We apply this test in the market for solar energy. Specifically, we estimate the pass-through of solar subsidies to solar system prices using rich micro-level transaction and subsidy data from California. Buyers of solar systems capture nearly the full subsidy, while there is more-than-complete pass-through to lessees. We conclude that solar markets are imperfectly competitive by ruling out alternative explanations for over-shifting and reinforce this conclusion with a test of solar demand curvature. This procedure can serve to detect market power beyond the solar market. (JEL H23, H76, L13, L63, Q42, Q48)

Paris, Panels, and Protectionism: Matching U.S. Rhetoric with Reality to Save the Planet

U.S. rhetoric has not matched reality in the free trade or sustainability contexts, as may be seen by the ongoing debates surrounding a range of behaviors that violate international trade rules. The U.S. government’s failure to adhere to the rules that it was instrumental in crafting sets a particularly troubling precedent. These trade distortions reduce trust and respect among countries and undermine efforts to combat climate change. Simultaneously, we are witnessing a growing preference for “minilateral” agreements as may be seen in the Obama Administration’s push for the Trans-Pacific Partnership and U.S.-EU Trade Pact. The Chinese government has pursued a similar approach in the context of financial governance and, with its recent creation of the Asian Infrastructure Investment Bank, has also exhibited a willingness to circumvent existing global institutions. Concurrently, the international community has been engaged in negotiations under the umbrella of the UN Framework Convention on Climate Change to mitigate the threat of global climate change and similarly promote sustainability, most recently via the Paris Agreement. This Article identifies a series of inconsistencies in U.S. trade policies and completes a comparative case study on the ongoing disputes between China and the United States surrounding solar energy subsidies in hopes of finding opportunities for collective action that promotes both free trade and sustainability. It also pinpoints roadblocks to promoting both the free trade and sustainability movements, and through the lens of the literature on polycentric governance, discusses the trend towards - as well as the benefits and drawbacks of - minilateral and multilateral approaches to furthering sustainable development.

Installing Photovoltaics in Germany: A license to print money?

Using detailed data originating from several hundred households of the German Residential Energy Survey (GRECS), this paper empirically investigates the returns on investment in photovoltaic (PV) installations. We find that these returns were particularly high in the years 2009 to 2011, when large subsidies for solar electricity coincided with plummeting module prices. While our empirical analysis demonstrates that such investments also incur substantial risks, there is evidence that, above all, wealthy households tend to benefit from the solar subsidies, whereas the costs of financing these subsidies are borne by electricity consumers at large, not least poverty-endangered households. The resulting redistribution of financial resources raises the question of whether the burden-sharing of Germany’s transition to an alternative energy system is fair.

Getting Green with Solar Subsidies: Evidence from the California Solar Initiative

AbstractSubsidies to promote energy efficiency and renewable energy have been widely adopted. We study the California Solar Initiative and find upfront rebates have a large effect on residential solar installations. We exploit variation in rebate rates across electric utilities over time and control for time-varying factors that affect solar adoption. Our preferred estimates suggest increasing rebates from $5,600 to $6,070 would increase installations by 10%. Overall, we predict 53% fewer installations would have occurred without subsidies. Over 20 years, these additional installations reduce carbon dioxide emissions between 2.3 and 3.4 million metric tons and local air pollutants (NOx) by 1,100 to 1,700 metric tons. Of the $440 million in rebates awarded, $121 million were rents to installations that would have occurred absent rebates. We estimate program costs of $0.06 per kilowatt hour and between $130 and $196 per metric ton of carbon dioxide.

Installing Photovoltaics in Germany: A License to Print Money?

Using detailed data originating from several hundred households of the German Residential Energy Survey (GRECS), this paper empirically investigates the returns on investment in home-equipped photovoltaics (PV) installations. We find that these returns were particularly high in the years 2009 to 2011, when large subsidies for solar electricity coincided with plummeting module prices. While our empirical analysis demonstrates that such investments also incur substantial risks, there is evidence that, above all, wealthy households tend to benefit from the solar subsidies, whereas the costs of financing these subsidies are borne by electricity consumers at large, not least poverty-endangered households. The resulting redistribution of financial resources raises the question of whether the burden-sharing of Germany’s transition to an alternative energy system is fair.

Consumer Subsidies with a Strategic Supplier: Commitment vs. Flexibility

Governments use consumer incentives to promote green technologies (e.g., solar panels and electric vehicles). Our goal in this paper is to study how policy adjustments over time will interact with production decisions from the industry. We model the interaction between a government and an industry player in a two-period game setting under uncertain demand. We show how the timing of decisions affects the risk-sharing between government and supplier, ultimately affecting the cost of the subsidy program. In particular, we show that when the government commits to a fixed policy, it encourages the supplier to produce more at the beginning of the horizon. Consequently, a flexible subsidy policy is on average more expensive, unless there is a significant negative demand correlation across time periods. However, we show that the variance of the total sales is lower in the flexible setting, implying that the government's additional spending reduces adoption level uncertainty. In addition, we show that for flexible policies, the supplier is better-off in terms of expected profits whereas the consumers can either benefit or not depending on the price elasticity of demand. Finally, we test our insights with a numerical example calibrated on data from a solar subsidy program.

From mercantile strategy to domestic demand stimulation: changes in China's solar PV subsidies

Through scrutinizing China's industrial subsidies towards its solar photovoltaic (PV) sector from a theoretical perspective constructed by Michael Porter on the government's role in forging national comparative advantages, this study tries to capture recent dynamics in China's state capitalism, which has been evolving from a mercantile stage in which most subsidies were designed to influence factor conditions and supporting industries, to a new stage of domestic demand with more subsidies aimed at reshaping domestic demand conditions to absorb redundant manufacture capacity. China has emerged as the world's largest solar panel producer, but compared to its fast-expanding wind power market that has congenital advantages in attracting policy support, China's domestic solar PV market has been underdeveloped and failed to absorb a large part of its inflated production capacity. Empirical evidences have shown that in sync with the state's recent policy shift to domestic demand from export-orientated mercantile strategy, the government's role in supporting the solar PV industry has been transforming from subsidizing the production side to subsiding the demand side. As solar PV power generation is approaching the breaking point of grid parity with existing subsidies and feed-in tariffs, China could witness its PV installed capacity grow exponentially in the near future.

Solar subsidy cuts in Germany

Solar subsidy cuts in Germany

Searching for public benefits in solar subsidies: A case study on the Australian government’s residential photovoltaic rebate program

The Australian Government ran a renewable energy program in the 2000s that provided rebates to householders who acquired solar Photovoltaic (PV) energy systems. Originally called the Photovoltaic Rebate Program (PVRP), it was rebranded the Solar Homes and Communities Plan (SHCP) in November 2007. This paper evaluates both the PVRP and SHCP using measures of cost-effectiveness and fairness. It finds that the program was a major driver of a more than six-fold increase in PV generation capacity in the 2000s, albeit off a low base. In 2010, solar PV’s share of the Australian electricity market was still only 0.1%. The program was also environmentally ineffective and costly, reducing emissions by 0.09 MtCO 2-e/yr over the life of the rebated PV systems at an average cost of between AU$238 and AU$282/tCO 2-e. In addition, the data suggest there were equity issues associated with the program, with 66% of all successful applicants residing in postal areas that were rated as medium–high or high on a Socio-economic Status (SES) scale.

Learning-by-Doing and the Optimal Solar Policy in California

Much policy attention has been given to promote fledgling energy technologies that promise to reduce our reliance onfossilfuels. These policies often aim to correct market failures, such as environmental externalities and learning-by-doing (LBD). We examine the implications of the assumption that LBD exists, quantifying the market failure due to LBD. We develop a model of technological advancement based on LBD and environmental market failures to examine the economically efficient level of subsidies in California’s solar photovoltaic market. Under central-case parameter estimates, including nonappropriable LBD, we find that maximizing net social benefits implies a solar subsidy schedule similar in magnitude to the recently implemented California Solar Initiative. This result holds for a wide range of LBD parameters. However, with no LBD, the subsidies cannot be justified by the environmental externality alone.

German government debates cutting back solar energy subsidies

German government debates cutting back solar energy subsidies

Solar subsidies and economic efficiency

In this paper the case for subsidies for solar energy to counter inefficient pricing practices of electric utilities, hidden subsidies to non-solar fuels and tax law biases are examined. The conclusion reached for two of three regions in the USA in the case of solar energy replacing electricity for hot water heating is that, far from offsetting biases against solar energy, current subsidies reinforce pre-existing biases in favour of the use of solar energy systems.