Association for Public Policy Analysis & Management

The expansion of distributed solar has changed the traditional utility/customer relationship. This has invigorated policy discussion about how to efficiently and equitably encourage continued growth of distributed solar while ensuring reliable grid operation. As utilities push back on incentives for distributed solar, a key policy question is whether the benefits of reduced grid consumption justify the cost of providing incentives. Aggregate demand and time of use are important factors, but little is known about how solar adopters change their behavior post-installation. For a consumer, solar energy decreases the marginal and average variabe cost of energy consumption. In this sense, installing residential PV has many correlations to energy efficiency improvements and may be subject to the same behavioral effects. The rebound effect is a well-studied phenomenon in which the benefits of efficiency upgrades are partially offset due to increased consumption. As the marginal cost of electricity falls, consumers undermine efficiency gains by using more. However, there is also evidence of conservation chains and green cues which may lead consumers to further reduce consumption. The installation decision improves the salience of electricity prices and usage which could lead consumers to invest in additional capital stock or modify their energy-consumption behavior. I use high frequency electricity consumption data to examine behavioral changes in solar adopters. I test for the presence of a “solar rebound” by investigating the relationship between solar generation and consumption. For robustness I use an event study for the limited number of households who installed solar during the observation period. Building on prior literature I explore both aggregate and time differentiated electricity use to examine demand changes and load shifting, setting up a critical test between two rival hypotheses: a rebound effect, and a green signal. The results have implications for system operators, utilities, and regulators who should be designing rates and incentives to promote system-wide efficiency and maximize benefits from distributed solar.