Financial Misperception and Energy Consumption: Lessons from Singapore’s SolarNova Programme
While rooftop solar energy is a cornerstone of Singapore’s climate strategy, new research reveals an "illusion of free electricity" among HDB dwellers, which in turn triggered increased utility consumption as an unintended behavioural consequence.
Wong Wei Chen
30 March 2026
As countries worldwide work towards net zero by 2050, solar energy is a clean energy source that plays an important role in this endeavour.
In Singapore, multi-family buildings, such as HDB flats, constitute a substantial share of the built environment here. From modest beginnings in the 1960s, today, over a million flats islandwide accommodate some 80% of the resident population.
To harness Singapore’s abundant solar potential, the government launched the SolarNova Programme in 2014 to accelerate solar energy adoption by installing panels on the rooftops of public housing. Through a phased approach, each year, specific Town Councils are selected for programme implementation.
The broad strokes of the programme represent a rational, even logical, step towards climate mitigation. However, as Cao and Fan discovered in their 2026 paper, “The Illusion of Free Electricity: Household Responses to Solar Panel Program in Singapore”, the behavioural economics of home dwellers revealed an unexpected twist. The mere announcement of the solar project – which carried a three-year lead time before installation – triggered an immediate and significant surge in utility consumption, occurring years before a single panel was operational or any actual cost savings were realised.
But why were residents surging ahead to consume more, and how much more were they consuming? The researchers provide robust evidence for a “financial misperception” – a behavioural blind spot where housing consumers became fixated on the prospect of benefiting from cheap, renewable energy. However, this anticipation proved to be an “illusion.” In reality, the electricity generated by the rooftop solar panels was used solely to power common facilities – such as elevators, water pumps, and corridor lighting – rather than being returned to individual households through lower utility bills.
The facts and figures
Using anonymised monthly block-level electricity and water consumption data for each flat type from January 2011 to December 2020, the researchers found that, following a tender announcement, affected public housing blocks experienced a 2.1% increase in monthly electricity consumption and a 2.3% increase in monthly water consumption compared to control groups.
Taking advantage of the phased rollout of the programme, the study deployed a staggered difference-in-differences (DiD) approach. By applying this method across different years and Town Councils, the researchers could effectively isolate the "announcement effect" from potential confounding variables – such as fluctuating energy prices or broader macroeconomic shifts like the 2018 liberalisation of Singapore’s electricity market – that might otherwise have skewed results over time. Crucially, this staggered structure allows the model to control for year-specific factors, including the state of the domestic economy, employment rates, and wage growth. By ensuring these shifts are accounted for across both treatment and control groups, the researchers were able to precisely identify the announcement itself as the primary driver of the consumption surge.
Ruling out competing explanations
To confirm that the consumption surge was indeed caused by the "illusion” of cheap solar energy, Cao and Fan had to address competing explanations that could likewise account for the phenomenon.
Wealth effect
One plausible explanation is the wealth effect. If residents believe that the installation of solar panels will increase the resale value of their HDB flats, they may feel wealthier and, consequently, increase their current consumption.
However, after analysing available records of all HDB resale transactions from 2011 to 2020, findings indicate that the solar panel programme tender announcement has no statistically significant effect on housing prices. Hence, the wealth effect is ruled out as an explanation.
Moral licensing
A second possibility is moral licensing, a psychological phenomenon where individuals feel they have earned "moral credits" through a pro-environmental action – such as the adoption of solar panels – and therefore feel justified in acting less sustainably.
However, Cao and Fan found that the elevated utility consumption returned to pre-announcement levels immediately after installation. While a moral licensing interpretation would predict persistent or even intensified consumption after a green project is completed, the data suggest residents responded to an information shock correcting the misperception that energy savings would accrue to households.
To furnish further supporting evidence, the researchers tracked a metric entirely unrelated to energy i.e. grocery spending. Findings revealed a 4.4% increase in grocery spending among treated households following the announcement, relative to the control group. Grocery shopping is tangential to sustainability and carries no "moral" link to solar panels. Hence, increased expenditure in the area suggests that it arose out of a perceived (albeit erroneous) increase in disposable income stemming from anticipated energy savings.
By systematically ruling out these alternatives, Cao and Fan solidify their case for financial misperception as the primary driver of increased utility usage.
The Demographics of Misperception
The study further explored who was most susceptible to this informational friction. Through detailed heterogeneity analysis, the researchers found that the consumption surge was not uniform across all demographics:
Heterogeneity by income and education
The effects were significantly more pronounced among lower-income households (proxied by smaller flat types) and those with lower education levels (proxied by distance to top-tier primary schools). Given their relatively constrained incomes, these segments are typically more price-elastic, making them more responsive to changes in utility costs, whether real or perceived.
Heterogeneity by built environment
Residents living in high-density areas with poor natural ventilation exhibited larger consumption spikes. Households in physically disadvantaged environments may rely more heavily on energy services and thus respond more strongly to perceived reductions in energy costs.
The carbon price tag
While a 2.1% increase in household electricity consumption may seem marginal, its aggregate impact at the macro level is substantial. The researchers calculated that over the three-year anticipation period across the roughly 814,800 households covered by the programme, this misperception generated an additional 233.5 GWh of electricity and 12 million cubic meters of water consumption. In dollar terms, the aggregate environmental externality amounted to approximately US$19.0 million or, equivalently, S$25.3 million.
Policy implications
Cao and Fan’s study offers important lessons for the effective implementation of solar energy programmes without triggering unintended outcomes. Affected residents may misinterpret announcements of collective rooftop solar installations as signalling private cost savings, which do not eventually pan out.
To mitigate such financial misperceptions, policymakers should prioritise clear communication of benefit-allocation. Additionally, since the misperception appeared to have been widespread, a cogent explanation as to why cost savings would not eventually accrue to households would be instrumental in preventing the "anticipatory surge" that erodes the programme's environmental gains.
Cao, Jingze is a PhD candidate at the Department of Real Estate, NUS Business School National University of Singapore.
Fan, Mingxuan is an assistant professor in the Department of Real Estate, NUS Business School, National University of Singapore.