Local and state governments and electric power companies provide a wide array of incentives for households and business to install new rooftop solar photovoltaic (PV) panels.  Among these incentives are net metering, Renewable Portfolio Standards (RPSs), tax credits, direct cash incentives and direct loan programs. Each type of incentive generates varied responses by businesses and homeowners, due to variation in the value of the incentives and the risk profiles associated with these policies.  We are interested in studying the interaction between incentives for renewable electricity, the effectiveness of various incentives, and how the distribution of risk affects PV investment.

Some of these incentives such as net metering and RPSs require customers to make large up-front investment with variable and uncertain returns.  Net metering customers’ financial incentive to install PV panels depends on their uncertain, future electricity prices since they pay for the electricity they use minus the electricity they generate.  Similarly, in addition to driving demand for renewable electricity, RPSs allow producers of solar electricity to produce and sell renewable energy credits that have variable future value, dependent upon the demand in the system and the response of other actors in the system.  In contrast, other policies provide fixed, certain financial incentives for households and businesses to install PV panels. These programs usually provide a payment that is independent of the performance of the PV panels and provide certainty about the costs of the PV installations by providing cash transfers, tax credits, or low interest loans.  In many jurisdictions, households and businesses qualify for a mix of fixed financial incentives and performance incentives of various forms.

We will empirically examine how these different types of incentives and their magnitudes interact with each other to encourage households and businesses to install new PV panels using detailed data on annual new installed capacity, electricity prices, the value of financial incentives, and renewable energy credit prices.  Our empirical approach will use a unique data set of the amount of PV capacity in each state and the value of incentives to PV owners. In particular, we use time-variant trading data to understand the role that Renewable Energy Credits play in incentivizing solar. We take advantage of the geographic and temporal variation in both the magnitude of these incentives as well as the combination of risky and certain incentives to estimate the change in the probability that a household or business installs new PV generating capacity.

This approach will allow us to estimate a distribution of costs per kWh of solar electricity production resulting from different combinations of incentives and compare these costs to estimates of the economic and environmental value of solar generation. 

This project will provide important information on how consumers and businesses are willing to trade financial risk and environmental gains in the adoption of green technologies.  This is particularly important since most new green technologies come with a large amount of uncertainty about their costs and will shed light on which tools are most effective at meeting policy goals.