Association for Public Policy Analysis & Management

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 Renewable Portfolio Standards (RPSs), sales tax exemptions, income tax credits, cash rebates, and property tax exemptions. 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 solar PV installation, the effectiveness of both the total and individual incentives, and, importantly, how the design of incentives affects PV investment.

Incentives such as RPSs require customers to make large up-front investment with variable and uncertain returns. 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 rebates, sales tax exemptions, property tax incentives and income tax credits. These individual incentives may provide up front, highly salient rebates to individuals and businesses (e.g. cash rebates), or alternatively provide temporally delayed incentives over the lifetime of the installation (e.g. property tax incentives). In many jurisdictions, households and businesses qualify for a mix of fixed financial incentives and performance incentives of various forms.

We 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 uses a unique data set of the amount of PV capacity in each state and the value of incentives to PV owners.  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 in response to these incentives.

This project will provide important information on how consumers and businesses respond to different incentives for solar PV. Preliminary results show significant differences in residential user installation rates across differing incentive types. We expect that more sophisticated commercial users will show less difference across incentive type, compared with residential users. These results align with the tax salience literature and are consistent with findings from studies on hybrid cars.