Harvesting Solar Power Foments Prices in a Vicious Cycle: Breaking the Cycle with Price Mechanisms

Abstract

Harvesting Solar Power Foments Prices in a Vicious Cycle: Breaking the Cycle with Price Mechanisms An important paper in this issue quantifies and explores how residential solar power adoption affects the price of electricity and the profit of a utility firm. It reveals the mechanism behind what is known as the “utility (death) spiral.” As more residences adopt solar power generation, the price of electricity goes up, whereas the profit of utility firm comes down. The study finds the equilibrium of a game played between consumers deciding to adopt residential solar power and the utility deciding on prices in a regulated market. The equilibrium, involving a potential bankruptcy for the utility firm and a high price for a nonadopter consumer, is desirable for neither. To avoid this, it suggests either decreasing the buyback price that the utility pays for the excess power of an adopter or introducing a subscription for adopters. These suggestions can inform pricing policies in the power market.