The Positive Feedback Cycle in the Electricity Market: Residential Solar PV Adoption, Electricity Demand and Prices.

Residential solar PV Positive feedback cycle Panel data analysis 1. Introduction Micro renewable energy systems are small scale energy systems which generate small amounts of energy when compared to traditional centralized power plants. Micro renewable energy systems have now made it possible for home owners to retrofit their premises to generate their own electricity and/or heat, thus becoming more self-sufficient. Allen et al. (2008) references a study where it was predicted that electrical micro renewable energy systems could provide 30–40% of the United Kingdoms’ electricity needs by 2050. Governments worldwide have included strategies to stimulate the growth of micro renewable energy systems at the residential level as part of their overall energy policy aimed at combatting climate change. Governments have used a variety of support mechanisms to achieve their targets which include Feed-in Tariffs (Fit), point of sales rebates including Renewable Energy Certificates (REC), and tax benefits. These policies have been successful in increasing the number installations particularly that of solar photovoltaic systems in the residential sector in countries like the United States of America, Australia and the United Kingdom (Allen et al., 2008; Chapman et al., 2016). Though, the increasing popularity of residential solar photovoltaic systems in electricity markets has led some to suggest that it has created a positive feedback cycle or loop. Simply put a positive feedback cycle is a situation where, action A generates more of action B which in turn ⁎ Corresponding author. E-mail address: james.hanly@dit.ie (J. Hanly). ABSTRACT Micro renewable energy systems (MRES) such as Photovoltaic (PV) are an increasingly important element of National energy strategies. However, the success of these installations has given rise to a positive feedback cycle whereby increased customer adoption results in reduced demand from Utility providers. This leads to price increases and further incentives customers to adopt MRES. This paper investigates the existence of a positive feedback cycle by developing a theoretical model based on simultaneous equations and estimating it using the three stage least squares approach using data from the UK, Australian and Irish Markets. Results indicate strong support for the idea of a positive feedback cycle. This reinforces the need for stakeholders to consider this issue in framing future energy policies to ensure that the adoption of solar PV is supported in a sustainable way, while not punishing non-adopters with higher electricity rates