DP11908 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, third-party ownership|
|JEL(s):||H22, Q42, Q48, Q58|
|Programme Areas:||Public Economics|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11908|
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.