Subsidies for Close Substitutes: Evidence from Residential Solar Systems

Alexander Abajian and Nick Pretnar

MPRA Paper from University Library of Munich, Germany

Abstract: Policies promoting residential solar system adoption are designed assuming the associated generation displaces retail electricity purchases on a one-for-one basis. This assumption is not innocuous; electricity from residential solar systems is unlikely to be perfectly substitutable with grid electricity. We estimate a model of U.S. residential electricity demand allowing for spatial heterogeneity and imperfect substitution between forms of electricity to quantify the implications for green energy subsidization. We find subsidies inducing one kWh of residential solar electricity demand displace only 0.5 kWh of grid consumption. As an emissions reduction policy subsidies had national abatement costs of $332 per MTCO2 in 2018.

Keywords: Residential PV systems; residential electricity demand; rebound effects; energy subsidies (search for similar items in EconPapers)
JEL-codes: H23 Q42 Q48 R23 (search for similar items in EconPapers)
Date: 2023-08-09
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:118171

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