Microeconomics of the Solar Rebound Under Net Metering

Matthew E. Oliver, Juan Moreno-Cruz and Kenneth T. Gillingham

Journal of the Association of Environmental and Resource Economists, 2025, vol. 12, issue 5, 1317 - 1353

Abstract: Residential solar photovoltaics generate “green” electricity but may also lead to an increase in household electricity consumption—a phenomenon termed the “solar rebound effect.” This study develops a theoretical framework for understanding the solar rebound. We show that the solar rebound is inherently linked to the net-metering compensation a household faces. While the solar rebound is often simply a pure income effect, it can also include a substitution effect in some policy contexts. A negative solar rebound is even possible. We derive the welfare effects of the solar rebound and provide insights for econometric estimation.

Date: 2025
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