Financial Incentives

Governments install incentive policies for PV in order to grow the industry even while the cost of PV is significantly above grid parity, hoping to achieve the economies of scale necessary to reach grid parity. The policies are implemented both for economic and environmental reasons. They will help to promote national energy independence, high tech job creation and reduction of CO2 emissions.

There are two types of incentives used:
Investment subsidies: the authorities refund part of the cost of installation of the system.
Feed in tariffs/net metering: the electricity utility buys PV electricity from the producer under a multiyear contract at a guaranteed rate.

These financial burden falls upon the taxpayer, the extra cost of feed in tariffs is distributed across the utilities' customer base. While the investment subsidy may be simpler to administer, the main reason given for feed in tariffs is the encouragement of quality. Investment subsidies are paid out as a function of the nameplate capacity of the installed system and are independent of its actual power yield over time. This causes a reward overstatement of power, and toleration of poor durability and maintenance. Feed in tariffs reward the number of kWh produced over a long period of time.

The price paid per kWh under a feed in tariff is more than the price of grid electricity. "Net metering" refers to the case where the price paid by the utility is the same as the price charged.
In Japan, the government (through its Ministry of International Trade and Industry) ran a successful programme of subsidies from 1994 to 2003. By the end of 2004, Japan was leading the world in installed PV capacity with over 1.1 GW.

The German government introduced the first large scale feed in tariff system in 2004. A law known as the 'EEG' resulted in explosive growth of PV installations in Germany. The principle behind the German system is a 20 year flat rate contract. The value of new contracts is programmed to decrease each year, in order to encourage the industry to pass on lower costs to the end users.

Spain, Italy, Greece and France have also introduced feed in tariffs. None have replicated the programmed decrease of FIT in new contracts though, so the German incentive relatively less and less attractive compared to other countries. The French FIT offers a uniquely high premium for building integrated systems.
In 2006 California approved the 'California Solar Initiative', offering a choice of investment subsidies or FIT for small and medium systems and a FIT for large systems. Incentives are scheduled to decrease in future depending as a function of the amount of PV capacity installed.

The price/kWh or kWp of the FIT or investment subsidies in stimulating the installation of PV is only one of three factors. The other two are insolation (the more sunshine, the less money is needed) and administrative ease of obtaining permits and contracts.



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