PV financial incentives

PV financial incentives

The political purpose of PV financial incentives is to grow the photovoltaics industry even where the cost of PV is significantly above grid parity, to allow it to achieve the economies of scale necessary to reach grid parity. The policies are implemented to promote national energy independence, high-tech job creation and reduction of CO2 emissions. When smart meters are used to manage demand and peak usage coincides with hot summer days, PV power can compete more closely with fossil fuels and the need for subsidy through feed-in laws is reduced.


Four incentive mechanisms are used (often in combination):
* 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.
* Renewable Energy Certificates ("RECs")
* Smart meters allow the retail price to more closely reflect the "spot" wholesale price at periods of peak demand. When demand is high the retail price is high and vice versa. With Smart Meters, when peak demand coincides with hot sunny days, PV installations can be much more competitive with the consumer price of electricity from retailers.

With investment subsidies, the financial burden falls upon the taxpayer, while with feed-in tariffs the extra cost is distributed across the utilities' customer bases. While the investment subsidy may be simpler to administer, the main argument in favour of 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, so reward overstatement of power, and tolerate poor durability and maintenance.

With feed-in tariffs, the initial financial burden falls upon the consumer. Feed-in tariffs reward the number of kilowatt-hours produced over a long period of time, but because the rate is set by the authorities may result in perceived overpayment of the owner of the PV installation. The price paid per kWh under a feed-in tariff exceeds 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, often achieved by having the electricity meter spin backwards as electricity produced by the PV installation in excess of the amount being used by the owner of the installation is fed back into the grid.

Where price setting by supply and demand is preferred, RECs can be used. In this mechanism, a renewable energy production or consumption target is set, and the consumer or producer is obliged to purchase renewable energy from whoever provides it the most competitively. The producer is paid via an REC. In principle this system delivers the cheapest renewable energy, since the lowest bidder will win. However uncertainties about the future value of energy produced are a brake on investment in capacity, and the higher risk increases the cost of capital borrowed.

The Japanese 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 led the world in installed PV capacity with over 1.1 GW. [http://www.oja-services.nl/iea-pvps/isr/22.htm]

In 2004, the German government introduced the first large-scale feed-in tariff system, under a law known as the 'EEG' (see below) which resulted in explosive growth of PV installations in Germany. At the outset the FIT was over 3x the retail price or 8x the industrial price. 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.

Subsequently Spain, Italy, Greece and France introduced feed-in tariffs. None have replicated the programmed decrease of FIT in new contracts though, making 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. The small-system FIT of $0.39 per kWh (far less than EU countries) expires in just 5 years, and the residential investment incentive is overwhelmed by a newly required time-of-use tariff, with a net cost increase to new systems. All California incentives are scheduled to decrease in the future depending as a function of the amount of PV capacity installed.

At the end of 2006, the Ontario Power Authority (Canada) began its Standard Offer Program (http://www.powerauthority.on.ca/sop/), the first in North America for small renewable projects (10MW or less). This guarantees a fixed price of $0.42 CDN per kWh for PV and $0.11 CDN per kWh for other sources (i.e., wind, biomass, hydro) over a period of twenty years. Unlike net metering, all the electricity produced is sold to the OPA at the SOP rate. The generator then purchases any needed electricity at the current prevailing rate (e.g., $0.055 per kWh). The difference should cover all the costs of installation and operation over the life of the contract.

The price/kWh or kWp of the FIT or investment subsidies is only one of three factors that stimulate the installation of PV. The other two factors are insolation (the more sunshine, the less capital is needed for a given power output) and administrative ease of obtaining permits and contracts (Southern European countries are reputedly relatively complex)

National incentives

The most significant incentives programs are listed here.


Australia is a federation of states and territories. Each state has different laws regarding feed-in tariffs. The states have a range of policies from no feed-in tariffs to feed-in tariffs at more than double the normal consumer price of electricity. Some states are considering feed-in tariffs but have not yet enacted relevant legislation, or the legislation has not yet come into effect. In the Northern Territory at present only the Alice Springs Solar City is eligible for feed-in tariffs for solar PV.


Situation as of 2007

* <=5kWp EUR 0.40/kWh
* >5kWp EUR 0.385/kWh

12 year contract, fixed remuneration [www.pvmed.org/uploads/media/0704200900C_05_ZACHARIOU.pdf]


Overview of Federal and provincial incentives at [http://www.cansia.ca/Default.aspx?pageId=139888 CanSIA] . Only Ontario offers significant incentive.


Situation as of 2007

Ontario Power Authority (OPA) Standard Offer Program (SOP).For renewable generation capacity of 10 MW or less, connected at 50 kV or less.

Feed-in Tariffs:

* Solar Photovoltaic: $0.42/kWh CDN
* Wind, Hydro, Biomass: $0.11/kWh CDN

Contract duration 20 years, constant remuneration. All power produced is sold to the OPA. Generator then purchases back what is needed at prevailing rate (e.g., $0.055/kWh CDN). The difference should cover costs of installation and operation over the life of the contract (perhaps with some profit).


Situation as of 2008. [http://www.hespul.org/New-French-PV-feed-in-tariffs.html] [http://www.hespul.org/Couts-et-financement.html]

Legal basis: Arrêté du 10 juillet 2006

Feed-in Tariffs:
* EUR 0.3193/kWh on mainland - EUR ca 0.42/kWh in DOM-TOM and Corsica
* Roof-integrated: EUR 0.57187/kWh on mainland, DOM-TOM and CorsicaContract duration 20 years, linked to inflation.

Additional investment subsidies available as tax credits.


Situation as of 2009. [http://www.solarserver.de/solarmagazin/eeg_04.pdf] [http://www.solarwirtschaft.de/fileadmin/content_files/EEG2009_Zusammenfass.pdf]

The legal framework is the German Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz – EEG), [http://de.wikipedia.org/wiki/Erneuerbare-Energien-Gesetz] amended version in force since 1 August 2004 modified in 2008. In view of the unexpectedly high growth rates, the feed tarif degression was accelerated ana new category (>1000MWp) was created with a lower tarif. The facade premium was abolished.

Feed-in Tariffs:Feed-in Tariffs (EUR/kWh)

Contract duration 20 years, indexed to 25% of annual inflation.New contract prices to reduce 1% per month starting 2010

Special program with higher FIT but no tax rebates planned to drive 750MWp installations of BIPV.

Investment subsidies: Tax rebates and grants (40%) are available.


The Indian Renewable Energy Development Agency (IREDA) provides revolving fund to financing and leasing companies offering affordable credit for the purchase of PV systems in India.

State Utilities are mandated to buy green energy via a Power Purchase Agreement from Solar Farms

The Ministry of New and Renewable Energy has launched a new scheme (Jan 2008) for installation of Solar Power Plants. For the producer, a Generation-based subsidy is available up to Rs. 12/kWh (€ 0.21/kWh) from the Ministry of New and Renewable Energy, in addition to the price paid by the State Utility for 10 years.

The State Electricity Regulatory Commissions are setting up preferential tariffs for Solar PowerRajasthan - Rs. 15.6 (€ 0.27) per kWhr (proposed)West Bengal - Rs. 12.5 (€ 0.22) per kWhr (proposed)Punjab - Rs. 8.93 (€ 0.15) per kWhr

80% accelerated depreciationConcessional duties on import of raw materialsExcise duty exemption on certain devices


As of March 2007. [http://it.wikipedia.org/wiki/Conto_energia] The Ministry for Industry issued a decree on 5th August 2005 that provides the legal framework for the system known as "Conto Energia"The latest version is the decree of 19 Feb 2007 [http://www.neocoop.eu/Pictures/conto_energia_2007_en.pdf English translation] Feed-in Tariffs (EUR/kWh)

Contract duration 20 years, constant remuneration.Tarifs for new contacts will be decreased by 2% each calendar year


The former incentive programme run by the Ministry of Economy, Trade and Industry was stopped in 2005.

outh Korea

Situation as of Oct 11 2006.

Feed-in Tariffs:
* Systems >30 kWp: KRW677.38/kWh
* Systems <30 kWp: KRW711.25/kWh (ca $0.75, €0.60)

Additional subsidies available.

Contract duration 15 years, constant remuneration


Situation as of 2006.

The legal framework is the Real Decreto (royal decree) 436/2004 modified by Real Decreto 1634/2006. As of 29 April 2007 the Spanish legislation is expected to change shortly, maybe substantially

Feed-in Tariff:

first 25 years:
* <= 100 kWp: 575% of the TMR = 0.4404 EUR/kWh
* > 100 kWp: 300% of the TMR = 0.2289 EUR/kWhafter 25 years:
* <= 100 kWp: 460% of the TMR = 0.3523 EUR/kWh
* > 100 kWp: 240% of the TMR = 0.1838 EUR/kWh

TMR: Reference Mean Tariff (Tarifa Media de Referencia) TMR as at 2006 = 0.076588 EUR/kWh. A new TMR is fixed by the government each year [http://noticias.juridicas.com/base_datos/Admin/rd436-2004.html] "in Spanish"

United Kingdom

Situation as of 2006.A grant system for installation has been operated by the Energy Saving Trust.

- Maximum of £2,000 per kW of installed capacity, subject to an overall maximum of £2,500 or 50% of the relevant eligible costs, whichever is the lower. [http://www.lowcarbonbuildings.org.uk/about/hfaqs/]

Tariffs for electricity sale and purchase are determined by individual electricity companies in a free-market situation, where consumers may choose their electricity supplier. There is no feed-in tariff.

United States


Federal tax credits of 30%, capped at $2000 for residential systems, no cap for businesses and expires December 31, 2008. Details of this and state incentives are summarized at [http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=US37F&State=federal&currentpageid=1&ee=0&re=1 DSIRE] . Legislation currently under consideration in Congress:“Renewable Energy and Job Creation Act of 2008.” Full text at [http://thomas.loc.gov/cgi-bin/bdquery/z?d110:HR06049:@@@L&summ2=m&] . This multifaceted energy bill would extend investment tax credit. As of June 21, 2008 it had passed the House but has not overcome opposition from Senate Republicans who have filibustered it over tax provisions that would finance the program [http://www.greentechmedia.com/articles/senate-blocks-renewable-incentives-bill-992.html] .


Starting 1 Jan 2007 [http://www.gosolarcalifornia.ca.gov/csi/performance_based.html]

Administrative basis: California Public Utilities Commission (PUC) decision of Aug. 24, 2006

Feed-in Tariffs and Investment subsidies :
* Systems >100 kWp: $0.39/kWh
* Systems <100 kWp can choose either $2.50/Wp or $0.39/kWh

Contract duration 5 years, constant remuneration

Net metering
* Up to 2.5% of peak demand, rolls over month to month, granted to utility at end of 12 month billing cycle


Colorado became the first U.S. state to create a renewable portfolio standard (RPS) under Amendment 37 in November 2004. amended in March 2007

Investor-owned utilities serving 40,000 or more customers to generate or purchase 10% of their retail electric sales from renewable-energy resources as well as a rebate program for customers [http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=CO24R&state=CO&CurrentPageID=1&RE=1&EE=0] Utilities must use increasing amounts of renewable or recycled energy to fulfil its sales in CO up to 20073% in 2007; 5% in 2008-2010; 10% in 2011-2014; 15% in 2015-2019; and 20%in 2020 and thereafter.At least 4% of the standard must be generated by solar-electric technologies, half of which must be generated at the customer (this part must be fulfilled by PV)Cooperatives and municipal utilities must follow a lower scale culminating in 10% in 2020. The 2007 amendments directed the Colorado Public Utility Commission (PUC) to revise or clarify its existing RPS rules on or before October 1, 2007. The PUC's rules generally apply to investor-owned utilities. Tradable Renewable Energy Certificates (RECs) may be used to satisfy the standard. Utilities that do not generate the required amount of electricity from renewable energy sources may purchase RECs from utilities that exceed the requirement. According to [http://www.eere.energy.gov/greenpower/markets/certificates.shtml?page=1 Green Power Network] in 2006, US RECs traded between ¢0.5 and 9.0/kWh. Many were at ¢2/kWh ($5-90/MWh)

Net metering:
* Credited to customer's next bill; utility pays customer at end of calendar year for excess kWh credits at the average hourly incremental cost for that year, limit on system size 2 MW, no enrollment limit

Utility rebate programs

Many states have counties and utilities which offer rebates of from $500 to $4/watt installed, as well as feed-in tariffs of up to $1.50/kWh. See reference for list. [ [http://www.dsireusa.org/searchby/SearchTechnology.cfm?EE=0&RE=1 Incentives for Photovoltaics] Choose Photovoltaics from the drop down box.] 40 states have net metering. See reference. [ [http://www.dsireusa.org/searchby/searchtype.cfm?&CurrentPageID=2&EE=0&RE=1 Net Metering Rules for Renewable Energy] Choose Net Metering Rules from drop down box.]


ee also

*Feed-in Tariff
*Green energy
*Renewable energy
*Renewable energy commercialization

External links

* [http://www.greenbiz.com/news/news_third.cfm?NewsID=35552&CFID=7471946&CFTOKEN=87544777 What Solar Power Needs Now]
* [http://www.renewableenergyaccess.com/rea/news/reinsider/story?id=51108 A National Solar PV Incentive Needed]

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