The Effect of Financial Incentives and Regulatory Policies on the State-Level Size and Cost of Solar Photovoltaics

This work evaluates the impact that regulatory policies, financial incentives, population, income and sunlight, have on the cost and size of the residential United States solar photovoltaic state-level market. My hypothesis is that the greater number of state level financial incentives and regulatory policies will be consistent with: (1) higher numbers of solar photovoltaic installations in the state, which is a proxy for market size; and (2) lower per kilowatt hour costs for solar photovoltaic energy in the state. Aspects of these hypotheses present the demand and supply function of solar Photovoltaic markets. Supply is measured by the size of solar markets while demand is represented in unit price per kilowatt hour of solar photovoltaic installations. A review of the literature shows that solar markets are growing and replacing coal fired power plants in growing numbers, as a response to Climate Change initiatives (Annual Energy Outlook, 2017). However, given market forces alone, solar energy is still too expensive to compete with traditional energy sources. Thus, government intervention is necessary in order to establish and maintain a competitive marketplace. My findings suggest that financial incentives are effective in increasing size of solar markets. Results also indicate that solar PV cost expressed in price per kilowatt is not determined by government policy, or other descriptive statistics captured in this study. Policy makers therefore may want to consider these factors as opportunities when crafting legislation aimed at growing solar photovoltaic market size, and minimizing costs. Possible avenues for this could be carbon taxing, or a consumption tax of traditional forms of residential energy usage