How to stimulate early adoption in renewable energy technology?
Renewable energy technology plays a crucial role in reducing global dependence on fossil fuels. Currently, renewable energy accounts for 12% of the world's energy supply. However, to achieve the goal of Net Zero Emissions by 2050, the share of renewable energy needs to exceed 30%. This is because energy usage is a significant contributor to CO2 emissions, and increasing the use of renewable energy sources is expected to contribute more than one-third of the necessary CO2 emission reductions that must be achieved in this decade to reach the Net Zero Emissions by 2050 target. (IEA, 2022)
Early adopters and technology diffusion
Households can contribute to renewable energy generation, and governments can play a role in promoting clean energy adoption by implementing public policies. Governments can offer subsidies to improve the financial feasibility of investing in emerging technologies, especially in the early stages when they may not be financially attractive. This can increase the uptake by early adopters and eventually stimulate wider adoption. Currently, home battery storage is an emerging technology, whereas heat pumps are more mature, and solar panels are already widespread. Can we identify these early adopters and how effective is it to provide them with subsidy?
What can we learn from more mature renewable energy technology?
The latest paper investigates the early days of solar panel adoption in the Netherlands from 2008 to 2010 and examines whether the provision of subsidies played a role in triggering adoption. We also analyze the characteristics of early adopters. To evaluate the effectiveness of solar panel subsidies, we exploit a natural experimental setting where a solar panel subsidy is randomly assigned to applying households by means of a lottery. This approach enables us to observe the outcomes for applying households that did not receive a subsidy. We analyze aerial images of household roofs to determine the potential presence of solar panels. By studying the subgroup of households applying for subsidies during the initial phase of technology adoption, we gain insights into how government subsidies impact households that are already inclined to respond to renewable energy technology incentives.
Do early adopters need subsidy?
Our paper finds that a subsidy program, without targeting, tends to attract a select group of applicants who are wealthier, higher educated, younger, and use more electricity. The households that receive subsidies are more likely to install solar panels. However, we find that households that applied to the subsidy program but were rejected also install solar panels in over 50% of cases within six years. We observe that they delay their installation by multiple years but eventually catch up. These households may be holding off on installation in anticipation of lower costs or the availability of other subsidy programs.
Figure 1: Net annual electricity consumption (Consumption – Production)
Figure 1 displays the electricity consumption trends over time for households that applied to the 2008 subsidy program, comparing accepted and rejected applicants to non-applicants. The figure demonstrates a clear difference in electricity consumption between applicants and non-applicants, with the former group exhibiting higher consumption levels. Following the acceptance of a subsidy application, electricity consumption decreases most rapidly among the accepted applicants, as they start generating electricity through the solar panels and rely less on the electricity grid.
What is the environmental impact?
In the end, the electricity consumption of those that got and did not get subsidy are not so far from each other. If we translate the electricity saved through the subsidy program by comparing the accepted subsidy applicants to the rejected ones, we find that saving electricity through this program was rather costly. However, we must also consider that the impact of the subsidy could extend beyond the direct effects on applicants. For example, installing solar panels may influence the likelihood that neighbors also adopt the technology. In the early stages of a technology, early adopters can play a crucial role in advancing development and reducing costs, which could facilitate faster adoption by a larger segment of the population.
The key is targeting
To optimize the allocation of public resources, it's crucial for policy makers to recognize that the subsidy program primarily appealed to households who would have adopted solar panels even in the absence of the subsidy. Therefore, a targeted program aimed at households facing greater investment obstacles could prove more effective in maximizing the impact of available subsidies.
These insights are particularly relevant for renewable energy technologies that are in an early stage of diffusion, such as home battery storage.