The Impact of Solar Panel Installation on Electricity Consumption and Production

Abstract

Since 2010, the Uruguayan government has fostered the installation of solar panels by households and firms to increase the small-scale production of renewable electricity. The government allows agents with solar panels to inject any excess of electricity into the grid. We study the environmental and economic consequences of this policy. We collect a novel dataset on electricity extraction and injection into the grid at the household/firm level for the whole country. First, we find that solar panels decrease the electricity extracted from the grid. Second, the amount of electricity injected into the grid increases. Third, we calculate the effects on CO2 emissions and the rebound effect. We find a reduction between 0.35 and 0.003 kg of CO2 emissions every month for each agent. We find evidence of a rebound effect, consumption increases between 20% and 26% on average. Finally, we propose an alternative policy that allows agents to store the electricity in batteries instead of immediately injecting it into the grid. According to our model, the best time to inject electricity into the grid is around 9 PM. We leverage household-firm level data to study the effect of a net-metering policy on electricity extraction and injection, showing what countries can expect from such a policy.