Essays on the Market for Residential Solar
William Deric Tilson
Advisor: Thomas Stratmann, PhD, Department of Economics
Committee Members: Tyler Cowen, Noel Johnson, Lynne Kiesling
Online Location, Online
July 15, 2024, 01:00 PM to 03:00 PM
Abstract:
This dissertation explores how laws and ordinances at the state and local levels impact the market for residential solar photovoltaics. It investigates how investment in residential solar is affected by upfront costs such as permitting fees, the choices made by households and solar developers as net generation revenues are threatened, and how reducing transaction costs through standardizing solar permitting processes encourages investment in solar.
The first chapter focuses on the effects of California SB1222, which capped permitting fees on new residential solar installations in localities across California. The passage of SB1222 increased the number of solar panel installations within the state due to the decrease in upfront costs. Difference-in-difference techniques are used to estimate the effects of the legislation. Localities with initial high fees had intermediate-run effects in their respective solar installation markets consistent with the theory of demand. The market responded by increasing the number of systems installed and the relative size of those systems. Capping permit fees reduced up-front costs and transaction costs for owners and leasers but was not enough to have a long-lasting effect on demand for residential solar.
The second chapter looks at the impacts on investments in residential solar when there are restrictive changes made to net metering policies and time-of-use rates. Revenue earned through net metering is a vital aspect to consider for those investing in solar power. This chapter describes the institutional framework of California's net metering policies and then uses the transition from Net Metering 1.0 to Net Metering 2.0 as a natural experiment, exploring the effects the transition had on the market for residential solar. After the transition, the short- and long-term solar investment costs increased while revenues from net generation decreased. Households increased installations after the implementation of less profitable time-of-use rates while developers decreased their investments. Both firms and households reduced their investment in residential solar after the switch to Net Metering 2.0, but to varying degrees. Differences in what firms and households maximize can explain these disparate effects.
The third chapter examines the effects of permitting and inspection processes on new solar installations through a transaction costs approach. Most authority-having jurisdictions require new solar photovoltaic systems to undergo permitting and inspections while being installed. Before the implementation of standardized solar permitting, each of California’s 540 authority-having jurisdictions had its own permitting and inspection process. The variation in permitting processes across the state increased costs for developers and consumers by creating uncertainty in expectations, enforcing barriers to entry in local markets, and delaying the interconnection date. I exploit the passage of AB 2188 in 2014, which standardized solar permitting across the state and reduced transaction costs for developers. AB 2188 had no enforcement mechanism, and not all localities passed the ordinance. Two-way fixed effects and unbiased staggered difference-in-difference estimators are used to test the effects of AB 2188 using cities that did not pass the ordinance as controls. Following the implementation, localities that passed the ordinance saw increases in the number of new solar installations and the number of solar developers providing installations within their boundaries. The results suggest lowering transaction costs caused by red tape and bureaucratic hurdles could increase investment in residential solar.