Consumer Preferences and Policy Implications for Renewable Energy Adoption

Abstract

In the first chapter of this dissertation, I study the relative advantages of investment (upfront) and output (production-based) subsidies for rooftop solar Photovoltaic (PV) adoption. While investment subsidies can be cost-effective due to adopters’ inter-temporal discounting (impatience), output subsidies are better targeted to site quality. Using data from the California Solar Initiative, I estimate a dynamic discrete choice model of solar adoption, then simulate counterfactual subsidy policies to find an optimal balance of investment and output subsidy rates. The model estimates adopters’ discounting factor and distribution of tastes, and hinges critically on the observed distribution of site quality as data. Considerable variation in personal taste (taste to be green) implies that the output subsidy can play a helpful role in incentivizing otherwise hesitant property owners with high production potential, while not overpaying eager adopters with lower potential. The intertemporal discount factor, reflecting consumers’ impatience, is a critical element in many models of consumer demand behavior. However, the discount factor must usually be calibrated (assumed) rather than estimated, and if calibrated incorrectly, may yield serious miscalculations in empirical results and policy implications. Therefore, in the second chapter of this dissertation, I estimate distinct values of the discount factor for commercial and residential adopters of solar. In showing that commercial adopters are only about one third as impatient as residential adopters, this paper offers useful context for researchers seeking to make informed calibrations of the discount factor in related settings. In the setting of rooftop PV solar adoption, the difference in discount factors implies that the most cost-effective combination of investment and output subsidies involves relatively higher output subsidy rates for commercial properties, and relatively higher investment subsidy rates for residential properties.