The changing effectiveness of financial incentives: Theory and evidence from residential solar rebate programs in California

Bixuan Sun, Ashwini Sankar

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

Financial incentives, such as rebate programs, are widely used to promote the adoption of residential solar photovoltaic systems. This paper studies the changing effectiveness of rebate programs as the solar market evolves. We develop a theoretical model to first characterize individual treatment effects then aggregate them to regional effect, and hypothesize that the aggregate treatment effect of rebates first increases and then decreases with declining costs and increasing net metering rate. We empirically test our hypotheses by estimating the treatment effect of rebate rate in California from 2006 to 2017 and its interaction terms with installation cost and residential electricity rate. Results confirm our hypotheses and identify an installation cost of $8.84/W and a residential electricity rate of 22.36c/kWh as the turning points where rebate impacts start to decline. Our findings suggest that front-loaded rebate rate design can be an effective and efficient tool at promoting residential solar adoption.

Original languageEnglish (US)
Article number112804
JournalEnergy Policy
Volume162
DOIs
StatePublished - Mar 2022

Bibliographical note

Publisher Copyright:
© 2022 Elsevier Ltd

Keywords

  • Financial incentives
  • Program impact
  • Rebate programs
  • Solar PV

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