Quantifying the Rebound Effects of Solar Panel Adoption

Customers who adopt solar panels can reduce their energy bills and lower the effective average electricity prices they pay. When the price falls, a solar consumer might consume more electricity than before – a solar rebound effect. We provide the first empirical evidence of solar rebound effects in the U.S. for both the residential and business sectors, using consumer-level hourly electricity meter data as well as hourly individual solar panel electricity generation data from 2013-2018 for a large sample of residential and business electric consumers in Arizona. For the residential sector, we find that when solar electricity generation increases by 1kWh, solar homes increase their total electricity consumption by 0.18kWh.

Building upon our theoretical framework, the increase in consumer surplus from solar panel adoption is estimated at $1179/yr. For business electric consumers, we show that when distributed solar panels increase solar electricity generation by 1kWh, business solar consumers on average increase their gross electricity consumption by 0.82kWh. We also show that due to rebound effects business distributed solar consumers might create a challenge to the utilities by increasing their monthly maximum demand in July and August, thus potentially requiring utilities to invest more in maximum generation capacity. Our results imply that rebound effects play a significant role in evaluating the potential benefits from distributed solar panel adoption.