A modeling study shows how under some conditions, increasing numbers of households with rooftop solar panels can lead to higher rates for those without their own solar system. When utility customers cancel their accounts after switching to residential solar panels, the utility must spread their fixed costs around to a smaller number of remaining customers, which can lead to rate increases. Charles Sims and colleagues studied how this pecuniary externality affects different income groups using agent-based computational economic modeling of the Tennessee Valley Authority (TVA), an area with some of the highest poverty rates in the United States. The authors asked 2,307 TVA residential customers whether they would be willing to invest in a rooftop battery-plus-solar system given varying upfront costs, savings on electric bills, and reductions in greenhouse gas emissions. The model predicts that as the cost of a solar system falls, 30% of customers defect from the grid and retail rates rise by 10% by 2051. Those higher rates become another factor pushing customers towards solar, in what the authors term a “utility death spiral.” Five percent more high-income than low-income customers leave the grid, raising equity concerns as the rates go up for the remaining customers. According to the authors, utilities and policy makers concerned about the equity implications of a transitioning electric grid should consider the use of grid access fees for customers with solar panels to recoup fixed costs.
PNAS Nexus
The equity implications of pecuniary externalities on an electric grid
9-Dec-2025