Distributed Decisions The Efficiency of Policy for Rooftop Solar Adoption

Governments around the world provide direct capital subsidies for solar energy technology adoption in order to lessen the externalities associated with fossil energy consumption. This paper analyses the efficiency of the largest customer-oriented program in the U.S., the $2 billion California Solar Initiative upon which programs in other states are modeled. An analytical model identifies limited conditions in which the programs declining rebate rate is preferred to a single, one-shot subsidy. Further, by exploiting exogenous changes in rebate levels over time, we estimate a rebate elasticity of approximately 0.4, suggesting a public cost per additional watt of more than half the total cost, and a cost per avoided ton of carbon of about $200. Also, using high-resolution satellite imaging and ground-level weather data, we estimate that suboptimal siting of the programs installed solar capacity sacrifices 15-25% efficiency. These results indicate that greater emissions reductions could be achieved by public funding of optimally sited utility-scale solar projects. JEL: Q21, Q42, Q48