Powering Demand: Solar Photovoltaic Subsidies in California

Abstract: Households ’ decisions to purchase solar photovoltaic systems are characterized by large upfront costs, differentiated products, and uncertainties about future government subsidies. This study analyzes the interplay of these factors using a dynamic discrete choice model. I use a newly assembled dataset, that covers all installations from 2002 through 2006 in California at the household level, to estimate demand for solar panel installations. Results suggest that across the distribution of housing values, households are price elastic with respect to both temporary and permanent changes in price. The marginal effect of technological innovation is significant with respect to the probability of purchase. Counterfactual simulations show that in the absence of government subsidies over 54 % of all purchases would have not occurred with the largest share of lost purchases originating from larger capacity installations. Larger capacity systems account for over 70 % of the total reduction in market capacity when government subsidies are removed. ∗e-mail: kreddix@email.unc.edu I thank my advisor, Brian McManus, and committee members Donna Gilleskie, Clement Joubert, Helen Tauchen, and Andrew Yates for helpful comments and encouragement throughout the cours