The Impact of Solar Panel Installation on Electricity Consumption and Production

Abstract

Since 2010, the Uruguayan government has fostered the installation of solar panels among households and firms to promote small-scale renewable electricity production. Under this policy, agents with solar panels are allowed to feed any electricity surplus into the grid. We study the economic and environmental consequences of this policy. We collect a novel dataset on electricity extraction and injection into the grid at a household/firm level for the whole country. First, we find that installing a solar panel reduces the electricity extracted from the grid. Second, we find that it increases the electricity injected into the grid. Third, we find that it reduces CO2 emissions by 0.15% with respect to the baseline. Fourth, we find evidence of a rebound effect: electricity consumption after the solar panel installation increases between 20% and 26%. Lastly, we propose an alternative policy that allows agents to store their electricity surplus in batteries instead of immediately injecting it into the grid. This policy would reduce CO2 emissions by 2.7%, allowing electricity injection into the grid at night when fossil-fuel facilities satisfy most of the electricity demand. We leverage household and firm-level data to study the effect of a net-metering policy on electricity extraction and injection, showing what countries can expect from implementing such a policy.