Solar surge and cost shifts: Heterogenous effects of redistribution in the electricity bills in Japan

This study investigates the impact of daily intermittency in solar energy on retail electricity bills, focusing on the “Duck Curve” and “Peak Shifting” phenomena and their varying effects on different consumer groups. Notably, commercial and industrial users exhibit higher demand around midday, while residential users peak during morning and evening hours. This prompts a crucial question: do peak shifting and redistribution effects differ among consumer groups due to their distinct electricity consumption patterns? Our analysis centers on Japan's power system, which has witnessed significant solar energy penetration, with solar capacity growing from 42 GW in 2016 to 83 GW in 2022. Utilizing monthly electricity consumption data and employing robustness checks through instrumental variable methods, we empirically demonstrate that increased solar penetration leads to higher electricity prices for residential consumers but reduced costs for commercial-industrial users. Additionally, we uncover the mediating role of pumped hydro storage (PHS) stations in stabilizing prices during peak and off-peak periods by managing energy demand variability, thereby mitigating economic impacts across consumer groups. This study highlights the issue of cross-class subsidization, where certain groups bear disproportionately higher electricity costs due to increased renewable energy penetration. It underscores the necessity for carefully crafted policy interventions to uphold market fairness and sustainability alongside large-scale renewable penetration, ensuring a balanced and equitable energy transition.