The Impact of Financial Incentives on Technology Adoption: Evidence from Random Allocation of Solar PV Subsidies - R&R at Management Science
(with Erdal Aydin, Dirk Brounen and Nils Kok) [Latest version]

SSRN: MIT Center for Real Estate Research Paper No. 24/04

To stimulate the adoption of renewable energy generation, policymakers often resort to subsidies. However, the efficacy of such subsidies remains an important topic of debate. This paper exploits a natural experimental setting in which a solar PV subsidy was randomly assigned to applying households. By combining data collected from aerial images with detailed household-level information, we estimate the effect of subsidy provision on the adoption of solar PV among applicants, including its impact on installed capacity, installation timing, electricity consumption, and ultimately, the spillover effect on adoption by neighbors. The results indicate that, within the group of households that applied for the subsidy, the provision of subsidy led to a 25.2 percentage point increase in solar PV adoption. We also find that the subsidy has had a significant effect on the installed capacity, and expedited solar installation by about a year. However, the subsequent electricity consumption of households accepted into the subsidy program decreased by just 7.1 percent, compared to the rejected applicant group, implying a cost of carbon of €995. When taking into account the neighborhood spillover effects of providing subsidy, the costs per ton of CO2 decrease to €218.