Contrasting effects of electricity prices on retrofit and new-build installations of solar PV: Fukushima as a natural experiment

Journal of Environmental Economics and Management所収

This paper examines the effects of financial incentives, particularly electricity prices, on residential solar photovoltaic system installations. We shed light on the importance of a factor that has been largely overlooked in the literature on the adoption behavior of low-carbon building technologies: the distinction between retrofit and new-build installations. To tackle the endogeneity of electricity prices, we use the 2011 Fukushima nuclear accident and subsequent shutdown of nuclear power plants in Japan as a natural experiment that caused substantial, exogenous, and regionally varying hikes in electricity generation costs and prices. For 2009–2014, electricity prices exhibit a statistically significant, positive effect for existing homes (with the mean elasticity of 1.6), but only a statistically insignificant, much smaller effect for new-build homes. A policy implication of the contrasting responses is that financial incentive schemes for low-carbon building technologies can be made more cost-effective by targeting retrofits more. We also find a large downward bias (40%–60%) if electricity prices are not instrumented with exogenous cost-shifters.

H. Chan