Residential solar installation prices, which are set on a case-by-case basis, remain both relatively high and variable despite significant declines in solar panel manufacturing costs. In this paper, I estimate a structural model of the solar installation market to quantify market power and to evaluate the welfare effects of connecting buyers and sellers through an online platform. I find that the platform yields a $1,451 increase in consumer surplus by increasing the number of installation bids each household receives. Households with higher energy consumption attract relatively more bids and reap the largest benefits from the platform. Counterfactual simulations yield two main results: 1) an increase from one to five bids per project causes a 15.5% ($4,000) reduction in gross installation prices and a 33% increase in the number of solar installations, and 2) the solar Investment Tax Credit—which is scheduled to be eliminated in 2022—improves total welfare by mitigating market power in addition to reducing pollution externalities from electricity generation.
Packing Power: Electricity Storage, Renewable Energy, and Market Design (Available on Request) with Andrew Butters and Gautam Gowrisankaran
Battery storage provides a potentially valuable complement to wind and solar power. Policymakers have recently incentivized and mandated storage as a means to integrate renewable energy and meet climate goals. We seek to understand the complementarity between storage and renewables and the impact of market design on the value of storage. We solve for the optimal dynamic dispatch of a battery operating in the California electricity market between 2015-2019, a period where solar PV generation more than doubled. We find that the potential value of electricity storage increased by more than 25% during that same period. With optimal dispatch, battery storage would be break-even without subsidies or mandates if battery capital costs declined by 38% or renewable energy penetration increased by 13% percentage points. Dispatch data from the existing fleet of batteries suggest that batteries only captured a small share of this value. Storage resources are charging too little during daytime hours when solar generation is high, and are not discharging sufficiently during evening hours when the sun sets. California market mechanisms that do now allow batteries to supply based on their stock of energy lower the value of battery storage by 26% and this gap has been growing over time. Thus, modifications of market bidding rules could significantly reduce the cost of policies that mandate the procurement of storage as a complement to renewables.
Things Remembered: How Drivers Collect and Use Gas Price Information (Available on Request) with Ashley Langer and Shaun Mcrae
From coffee to gasoline, consumers often make recurring purchases without having complete information about current characteristics or how characteristics may have changed since the last time they purchased. In this paper, we use geospatial data on drivers’ travel paths and gasoline purchasing behavior to understand how drivers choose where to stop to purchase gas and to understand driver information acquisition and use. We find that consumers appear to have incomplete information about the set of stations available and the prices that those stations charge. Drivers are more sensitive to prices at stations they have passed before or that are directly on their current route. Perfect information would increase consumer surplus by 6 cents per gallon purchased, but drivers would largely use this information to find better brands or stations that are closer to their routes rather than stations that are less expensive overall. Even conditioning on current prices, drivers use out-of-date or “stale” information on station prices when choosing where to stop. We show that drivers become more price-sensitive when the prices they observe are increasing, suggesting that drivers are loss averse. In ongoing work, we show suggestive evidence that drivers increase their reliance on stale prices when the prices the observe are increasing, which increases their overall price sensitivity particularly for stations farther from their quickest route.
Waiting for the Courts: Effects of Policy Uncertainty on Pollution and Investment Environmental & Resource Economics, 2019
Legal challenges and transitions of political power cause the future of regulatory policies to be uncertain. In this article, I investigate how uncertainty about environmental policy affects investment and emissions at coal-fired power plants. I exploit a legal challenge to the Clean Air Interstate Rule (CAIR) that created variation in the probability that individual plants would need to comply with the new policy. I use a difference-in-differences approach to compare pollution reductions at power plants located in states subject to more uncertainty to plants in states that that were not. I find that plants with a lower probability of being regulated invested in fewer capital-intensive pollution controls and reduced pollution by 13% less on average. Many of these plants did switch to capital-intensive pollution controls after the court upheld CAIR. Policy uncertainty increased compliance costs by $124 million by delaying efficient investments.