Understanding the Regional Dynamics of Solar Energy Adoption: A Case Study of Norway's Electricity Market

Abstract

This thesis investigates the impact of bidding zones on solar photovoltaic (PV) uptake in Norway by replicating and adapting the Synthetic Control Method (SCM) used in a similar study conducted in Sweden. The SCM, developed by Abadie and Gardeazabal (2003) and further improved by Abadie, Diamond, and Hainmueller (2010), constructs a synthetic control unit by assigning optimized weights to a combination of control units, creating a counterfactual that closely resembles the treated unit before the intervention. This method addresses the biases inherent in simple before-and-after comparisons or difference-in-differences approaches. Drawing inspiration from the study "Do separate bidding zones within countries create imbalances in PV uptake? Evidence from Sweden" by Johanna Fink, this paper adapts the SCM to the Norwegian context by accounting for structural and socio-economic differences between the two countries. The results demonstrate that while bidding zones and price divergence have a significant impact on PV uptake in Norway, the choice of control variables is crucial to the robustness of the synthetic control. Our findings highlight the importance of avoiding overfitting and ensuring that the model captures true underlying patterns rather than noise. This study contributes to the literature on renewable energy adoption and provides insights for policymakers on the effects of electricity market segmentation.