On the economics of residential solar PV subsidies: impact on adoption and savings

Ever since its advent, the adoption of renewable energy technology has received significant government support. However, there is limited empirical evidence on the effectiveness of subsidies that are used to promote renewable energy technology. Using a natural experimental setting where a solar PV subsidy is assigned randomly to applying households, we estimate the impact of subsidy provision on the adoption of solar PV, installed capacity, timing of the adoption and, ultimately, on electricity consumption. The results show that, within the group of households that applied for the subsidy, the provision of subsidy leads to a 14.4 percent increase in the probability of adopting solar PV, a 33.2 percent larger installation, and a 1 year faster adoption. However, examining the subsequent electricity consumption of the applicants, we report that the subsidy provision leads to a decrease in household electricity consumption of ”just” 8.1 percent, as compared to the rejected applicant group, implying a cost of carbon of more than €2,202 per ton CO2. The results of the paper show that the subsidy program mostly attracted the converted, although there might be spillover and other effects that may reduce the cost to somewhat lower levels.