The impact of rising electricity prices on demand for photovoltaic solar systems

Since 2012, there are four different electricity price zones in Sweden, although not until 2021 a clear deviating development can be identified. The aim of this study is to investigate the impact of the regional electricity price divergence starting in 2021 on the demand for solar photovoltaic installations in municipalities in the Southern and Central parts of Sweden. Methodologically, the analysis employs a panel Poisson estimator that accounts for the skewed distribution of the dependent variables including zero values. Data include all 290 municipalities from 2016 to 2023. Estimation results show that the increase in electricity prices in the South of Sweden leads to a surge in the number of solar photovoltaic (PV) installations of 25 % per year from 2021 onwards on average relative to the low-price zone in the North of Sweden and the base period 2016 to 2020. In the case of Central Sweden which is also in the high price zone, the estimates show an increase of 15 % per year on average. Thus, the findings suggest that households react to price incentives by trying to be independent of the electricity market and its fluctuating prices. Similar results are achieved when the installed capacity in megawatts is used as a dependent variable instead of the number of installations. Rising electricity prices explain less than half of the increase in demand for solar photovoltaics over time. A vast majority is related to the time effects.