The method in which electricity is produced in industrial-sized, centralized facilities and distributed to users through power grids has been the main electricity-generation method in the US for a long time. Yet, given that a lot of the grids are currently out-of-date and expensive to be upgraded, as well as the fact that the solar energy sector has grown dramatically over the past years, more and more attention has been given to distributed solar power generation. Under this method, individual residential and commercial units can adopt rooftop solar panels to generate electricity on their own without having to rely solely on electricity from the centralized power grids. One interesting question to ask is about the elasticity of the demand for distributed solar energy with respect to some factors that could impact individuals’ decisions to adopt this form of energy, such as the incentive amount, income, and the price of utility-generated electricity. In other words, how responsive is demand for electricity generated by solar panels to changes in those factors?
Using data from the California Solar Initiatives in 2013, I estimate the elasticity of demand for distributed solar energy with respect to the price of utility-generated electricity, the price of electricity generated by solar panels and the solar incentive amount that each solar panel owner received. The research focuses on Los Angeles, Orange, San Bernardino, San Diego, and Riverside counties, the five southern counties with the most amount of distributed solar energy generated in California in 2013. My findings reveal that demand for distributed solar energy, as reflected through the amount of energy produced by solar panels, is elastic with respect to the solar incentive amount, and that the elasticities with respect to the price of utility-generated electricity and the price of electricity generated by solar panels vary according to different model specifications.
Linh Nguyen, ’16
Mount Vernon, IA
Economics & Business
Sponsor: Michelle Herder