Welfare and Redistribution in Residential Electricity Markets with Solar Power

60 Pages Posted: 2 Jan 2018 Last revised: 22 Sep 2021

See all articles by Fabian Feger

Fabian Feger

University of Bern

Nicola Pavanini

Tilburg University; Tilburg University - Tilburg University School of Economics and Management; CEPR IO Programme

Doina Radulescu

University of Bern

Date Written: December 2017

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 incentivise 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 2008-2014. 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 incentivise solar panel adoptions is more cost efficient and progressive across the income distribution, but generates a larger aggregate welfare loss.

JEL Classification: D12, D31, L94, L98, Q42, Q52

Suggested Citation

Feger, Fabian and Pavanini, Nicola and Radulescu, Doina, Welfare and Redistribution in Residential Electricity Markets with Solar Power (December 2017). CEPR Discussion Paper No. DP12517, Available at SSRN: https://ssrn.com/abstract=3095567

Fabian Feger (Contact Author)

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

Nicola Pavanini

Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://https://sites.google.com/site/nicolapavanini/

Tilburg University - Tilburg University School of Economics and Management ( email )

PO Box 90153
Tilburg, 5000 LE Ti
Netherlands

CEPR IO Programme ( email )

London
United Kingdom

Doina Radulescu

University of Bern ( email )

Gesellschaftsstrasse 49
Bern, BERN 3001
Switzerland

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