DP11908 | The Surprising Pass-Through of Solar Subsidies

Publication Date

03/14/2017

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Abstract

We estimate the pass-through of solar energy subsidies to solar system prices. Rich micro-level transaction and subsidy data from California indicate that pass-through is remarkably high and differs substantially for consumers who buy versus lease solar systems. Buyers capture nearly the full subsidy, while there is more-than-complete pass-through to lessees. We formalize pass-through over-shifting as an under-utilized test for market power that can also be applied in other contexts. We rule out alternative explanations for over-shifting and conclude that our estimates provide evidence for imperfectly competitive solar markets. Our findings have implications for the distributional effects of energy subsidies.