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Welfare and Redistribution in Residential Electricity Markets with Solar Power

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  • Fabian Feger
  • Nicola Pavanini
  • 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 incentivize 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 to 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 incentivize solar panel adoptions is more cost efficient and progressive across the income distribution, but generates a larger aggregate welfare loss.

Suggested Citation

  • Fabian Feger & Nicola Pavanini & Doina Radulescu, 2022. "Welfare and Redistribution in Residential Electricity Markets with Solar Power," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 3267-3302.
    • Handle: RePEc:oup:restud:v:89:y:2022:i:6:p:3267-3302.
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    File URL: http://hdl.handle.net/10.1093/restud/rdac005
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    Cited by:

    1. Lucas W. Davis, 2024. "The Economic Determinants of Heat Pump Adoption," Environmental and Energy Policy and the Economy, University of Chicago Press, vol. 5(1), pages 162-199.
    2. De Groote, Olivier & Gautier, Axel & Verboven, Frank, 2024. "The political economy of financing climate policy — Evidence from the solar PV subsidy programs," Resource and Energy Economics, Elsevier, vol. 77(C).
    3. Ansarin, Mohammad & Ghiassi-Farrokhfal, Yashar & Ketter, Wolfgang & Collins, John, 2022. "A review of equity in electricity tariffs in the renewable energy era," Renewable and Sustainable Energy Reviews, Elsevier, vol. 161(C).
    4. Fabra, Natalia & Reguant, Mar, 2024. "The energy transition: A balancing act," Resource and Energy Economics, Elsevier, vol. 76(C).
    5. Patrick Bigler & Doina Maria Radulescu, 2022. "Environmental, Redistributive and Revenue Effects of Policies Promoting Fuel Efficient and Electric Vehicles," CESifo Working Paper Series 9645, CESifo.
    6. Bishop, Kelly C. & Kiribrahim-Sarikaya, Ozgen, 2024. "Energy-efficient investments in housing," Regional Science and Urban Economics, Elsevier, vol. 107(C).
    7. Bryan Bollinger & Naim Darghouth & Kenneth Gillingham & Andres Gonzalez-Lira, 2023. "Valuing Technology Complementarities: Rooftop Solar and Energy Storage," NBER Working Papers 32003, National Bureau of Economic Research, Inc.
    8. Mark Colas & Emmett Saulnier, 2023. "Optimal Subsidies for Residential Solar," CESifo Working Paper Series 10446, CESifo.
    9. Javier L'opez Prol & Karl W. Steininger & Keith Williges & Wolf D. Grossmann & Iris Grossmann, 2022. "Potential gains of long-distance trade in electricity," Papers 2205.01436, arXiv.org.

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