Work

The equity implications of pecuniary externalities on an electric grid

Year: 2025

Type: article

Abstract: The adoption of rooftop photovoltaic (PV) systems can create upward pressure on retail electricity rates as utilities are forced to spread their fixed costs of generation and transmission across a smaller customer base. Since high-income households are more likely to purchase PV systems, low-income households may be disproportionately impacted by these rate increases. Using a novel combination of agent-based computational economic modeling and a choice experiment of rooftop solar adoption, we show how this pecuniary externality between low- and high-income customers increases low-income electricity bills by 10% in an area with some of the highest poverty rates in the United States. Since high-income solar adoption is less sensitive to electricity bills than low-income adoption, this pecuniary externality also reduces PV adoption inequity by nearly 1 percentage point. However, the reduction in PV adoption inequity, and the bill savings it generates, are not large enough to offset the $7.8 million ($9.86 per customer) annual increase in low-income electricity bills. Low-income assistance programs will likely fail to fully internalize the pecuniary externality due to horizontal and within-income-group vertical equity concerns.

Source: PNAS Nexus

DOI: 10.1093/pnasnexus/pgaf356

Authors: Charles Sims, Gasser G Ali, J Scott Holladay, Tim Roberson, Chien-fei Chen, Islam H El-adaway