Microeconomics of the Solar Rebound Under Net Metering

38 Pages Posted: 13 Apr 2023 Last revised: 13 Jan 2024

See all articles by Matthew E. Oliver

Matthew E. Oliver

Georgia Institute of Technology

Juan Moreno-Cruz

University of Waterloo - School of Environment, Enterprise and Development

Kenneth Gillingham

Yale University

Date Written: January 12, 2024

Abstract

Residential solar photovoltaics generate `green' electricity, but may also lead to an increase in household electricity consumption---a phenomenon termed the `solar rebound effect.’ This paper develops a theoretical framework for understanding the solar rebound. We show that the solar rebound is inherently linked to the net metering compensation a household faces. While the solar rebound is often simply a pure income effect, it can also include a substitution effect in some policy contexts. A negative solar rebound is even possible. We derive the welfare effects of the solar rebound and provide insights for econometric estimation.

Keywords: renewable energy policy, solar rebound effect, residential solar photovoltaics, net metering, electricity consumption

JEL Classification: Q41, Q42, Q48, Q54

Suggested Citation

Oliver, Matthew E. and Moreno-Cruz, Juan and Gillingham, Kenneth, Microeconomics of the Solar Rebound Under Net Metering (January 12, 2024). USAEE Working Paper No. 23-588, Available at SSRN: https://ssrn.com/abstract=4416747 or http://dx.doi.org/10.2139/ssrn.4416747

Matthew E. Oliver (Contact Author)

Georgia Institute of Technology ( email )

Atlanta, GA 30332
United States

Juan Moreno-Cruz

University of Waterloo - School of Environment, Enterprise and Development ( email )

Waterloo, Ontario N2L 3G1
Canada

Kenneth Gillingham

Yale University ( email )

493 College St
New Haven, CT CT 06520
United States

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