Impact of feed-in tariffs on electricity consumption

The diffusion of renewable energy sources is an important policy issue for all countries. In particular, feed-in tariffs (FITs) are a major policy instrument used to diffuse renewable energy sources in developed countries. A few recent studies have found a rebound effect from the installation of solar photovoltaic (PV) systems. However, consumer behavior in relation to electricity consumption following the installation of solar PV systems is largely unknown. In particular, previous studies do not effectively reveal the FIT effect on electricity consumption. Therefore, we set up a model to measure this effect and conduct empirical analysis to confirm the theoretical contribution of the improved model. Our estimation results based on the matching method show that the FIT scheme increases the consumption of electricity purchased from electricity companies if the FIT rate exceeds the electricity price. This finding is important for better understanding the true cost-benefit of FITs.