DP12517 | Welfare and Redistribution in Residential Electricity Markets with Solar Power

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An increasing number of households installing solar panels raises two challenges for regulators: network financing and vertical equity. We propose an optimal tariff design for policymakers to incentivise solar panel adoptions, while guaranteeing the sustainability and equitable distribution of network costs. We estimate structural models of energy demand and solar panel adoption, using a unique matched dataset on energy consumption, income, wealth, solar panel installations, and building characteristics for 135,000 households in the Canton of Bern (Switzerland) in 2008-2013. Our counterfactuals recommend the optimal solar panel installation cost subsidies and optimal tariffs to achieve various solar energy targets.