Contrasting effects of electricity prices on retrofit and new-build installations of solar PV: Fukushima as a natural experiment

Takahiko Kiso, H. Ron Chan and Yosuke Arino

Journal of Environmental Economics and Management, 2022, vol. 115, issue C

Abstract: This study examines the effects of financial incentives, particularly electricity prices, on residential solar photovoltaic (PV) system installations. We highlight the importance of a factor in the adoption of low-carbon building technologies that the literature has largely overlooked: the distinction between retrofit and new-build installations. To address the endogeneity of electricity prices, we use the 2011 Fukushima nuclear accident and the subsequent shutdown of nuclear power plants in Japan as a natural experiment that caused substantial, exogenous, and regionally varying increases in electricity generation costs and prices. Electricity prices have a statistically significant, positive effect on PV system installations for existing homes (with a mean elasticity of 1.6), but a statistically insignificant, much smaller effect for new-build homes. A policy implication of these contrasting responses is that the cost-effectiveness of financial incentive schemes for low-carbon building technologies can be improved if they are targeted more at retrofits. We also find a large downward bias (40%–60%) in the estimated effect of electricity prices if they are not instrumented with exogenous cost-shifters.

Keywords: Solar PV; Retrofit installation; New-build installation; Electricity price; Fukushima; Targeting (search for similar items in EconPapers)
JEL-codes: L94 Q41 Q42 Q48 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:115:y:2022:i:c:s0095069622000559

DOI: 10.1016/j.jeem.2022.102685

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