Private Net Benefits of Residential Solar PV: The Role of Electricity Tariffs, Tax Incentives, and Rebates

With dramatic declines in the cost of solar PV technology since 2010, the electricity industry is in the midst of debates about whether to use this low-polluting renewable energy source in grid-scale generation or in distributed rooftop generation (DG). California has led the growth in DG solar in the United States. I use 2007 to early 2014 residential data from Pacific Gas & Electric—the utility with the largest number of residential solar customers in the United States—to examine the full range of private incentives for installing residential solar, from direct rebates and tax credits to indirect incentives that result from the residential tariff design and the crediting of solar production under “net energy metering.” I then study the income distribution of solar adopters and how that has changed over time. I find the skew to wealthy households adopting solar is still significant but began to lessen after 2011. Adoption continued to be dominated by the heaviest electricity-consuming households, probably because the steeply tiered tariff structure greatly increased the private value of solar to such customers while reducing the incentive for consumers who are below median consumption. In fact, the financial incentive for those who actually adopted solar over the sample period may have been due nearly as much to California’s tiered tariff structure as to the 30% federal tax credit. The California experience suggests that rate design can greatly influence the economic incentives for residential solar adoption and which customers receive those benefits.