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Title: The Surprising Pass-Through of Solar Subsidies

Author(s): Jacquelyn Pless, Arthur Van Benthem

Publication Date: March 2017

Keyword(s): buy vs. lease, demand curvature, market power, over-shifting, Pass-Through, solar subsidy and third-party ownership

Programme Area(s): Public Economics

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.

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Bibliographic Reference

Pless, J, Van Benthem, A. 2017. 'The Surprising Pass-Through of Solar Subsidies'. London, Centre for Economic Policy Research. http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11908