An international overview of promotion policies for grid-connected photovoltaic systems


  • All monetary units are expressed in €2005, with consideration being taken of yearly country inflation.


The design of effective future promotion polices for photovoltaics (PV) needs the lessons learned from past experiences. The major objective of this study is to analyse the major PV markets over time to identify the effects caused by the two main promotion schemes: the achievement of economic profitability by means of Feed-in Tariffs (FiTs) and the use of the Willingness-to-Pay (WTP) in investment subsidies. For this purpose, indicators have been defined that characterise the promotion policies for grid-connected PV since the middle of the 1990s: (i) dissemination effectiveness, (ii) costs for the public, (iii) development of system prices over time, (iv) consumer's WTP and (v) profitability for the consumer.

The following are the major conclusions of this analysis. (i) If financial incentive programmes are implemented over a reasonable time frame, they work with respect to both significant price decreases as well as increases in quantities. (ii) FiT schemes and also investment subsidies and combined concepts are able to increase the market penetration and the diffusion of PV systems. They are especially relevant in the context of optimising the own use of PV electricity generated. (iii) Regarding the design of promotion systems, it is important that on the one hand, they consider customers WTP, and on the other hand, they include a well-defined dynamic component, which considers the effects of Technological Learning. In this context, capacity corridors, as were introduced in Germany, are essential. This tool allows predictable legislations and the correction of incentive payments without generating boom and bust cycles. Copyright © 2012 John Wiley & Sons, Ltd.


At least, since the 1990s, photovoltaics (PV) was considered as an important technology option for generating electricity in an environmentally benign way. However, the high costs were a major barrier for a broader market penetration of PV. To remove this barrier at least partly and to trigger respectively accelerate technological learning, various types of support schemes were implemented. Although in the early phase a very broad range of such promotion programmes was tried (see, for example, Haas 2003, [1]), in recent years, mainly two types of financial incentives survived: Feed-in Tariffs (FiTs) and investment subsidies. In recent years, these promotion schemes have led to decreasing prices and considerable capacity deployments. Today, with looming grid parity, we are on the advent of the market breakthrough of this technology.

The core objective of this paper is to evaluate the promotion programmes that have led to this developments We analyse the most important countries with respect to promotion schemes and extract the major lessons learned for effective and efficient promotion of technologies in future. We identify the effects caused by the two main approaches: the achievement of economic profitability by means of FiTs and the consideration of willingness-to-pay (WTP) in investment subsidy schemes.

Of special interest is which programmes were most successful with respect to triggering the largest deployment quantities with the lowest costs. Major publications this work builds on are Dusonchet et. al. [2], Haas [1] Lüthi [3], International Energy Agency (IEA) [4], Dinçer [5] and Guidolin et al. [6]. Although the IEA throughout the yearly survey report of selected IEA countries and Dinçer mainly carry out a description of the PV markets, Guidolin et al. [6] apply a diffusion model to analyse and forecast national adoption patterns of photovoltaic installed capacity. In this last mentioned paper, policies are briefly described to explain the diffusion results in 11 countries. In this sense, the corresponding contribution of this paper is to document PV market policies since the very first stages of market development

A specific aim of this study is to extract simple indicators that characterise the promotion policies for grid-connected PV since the middle of the 1990s. The following indicators have been defined: (i) dissemination effectiveness, (ii) costs to the public, (iii) development of system prices over time, (iv) exhausting and increasing consumers' WTP and (v) profitability for the consumer. The results must be taken as approximate and success assessed through comparison with other countries. More specific studies analyse these parameters for PV and other technologies through more complex mathematical models. However, this is beyond the scope of this article. Thus, Lund [7] investigates the cost effectiveness of public energy policy measures by using the additional costs per energy effect. Van der Zwaan et al. [8] examine the prospects for cost reductions of PV electricity by using learning curves. Scarpa et al. [9] adopt a choice experiment approach to investigate households' WTP for PV and other renewable energy sources in the UK. Profitability approaches have been frequently used in the past. One of the most recent studies is that of Talavera et al. [10], in which the internal rate of return has been calculated for different countries with reference to their respective promotion policies.

The present paper is structured as follows. After a brief background description of the development of the PV market and a review of promotion policies for grid-connected PV systems, PV promotion policies in Germany, Spain, Italy, Switzerland, California, Australia and Japan are evaluated in accordance with the aforementioned set of indicators of success.


In 2002, grid-connected residential applications represented more than 50% of the total world PV market with an increase of 35% on 2001, whereas in 2003, they represented 77% and in 2009, more than 97% [11–13]. What is the reason for this continuous annual increase in installed capacity in spite of PV's high upfront costs? The answer is related to the worldwide promotion policies for grid-connected PV systems that have driven the PV demand since the very first countrywide PV investment subsidy started in Germany in 1989.1 Despite the ups and downs characteristic of the photovoltaic incentive markets, the global growth rate has remained positive throughout the years, as depicted in Figure 1. The following can be regarded as worldwide milestones for the promotion of PV grid-connected systems:

  • 1994: Start of the Japanese investment Roof Programme subsidy ‘Japanese Residential PV System Dissemination Programme’;
  • 1999: Start of the German financing scheme for PV in the residential sector ‘German 100 000’;
  • 2004: The amended ‘Renewable Energy Act’ (EEG, 2004), which introduced favourable feed-in tariffs for PV applications in Germany;
  • 2008: Peak demand of PV capacity in Spain because of (i) favourable feed-in tariffs for PV applications and (ii) an imminent change to less favourable rates in 2009.
Figure 1.

Worldwide cumulative installed capacity until 2009 (source: [11]).

By the end of 2009, the worldwide installed PV capacity had risen to more than twice what it was in 2007. Nevertheless, the following should be noted with respect to the cumulative installed capacity of certain countries:

  • Almost 60% of the cumulated PV installed capacity is covered by Germany and Spain;
  • By contrast with the long-term FiTs-based strategy in Germany, the PV market in Spain was primarily created by the high level of the FiT granted in 2008, which attracted a great number of professional investors;
  • At present (2010), European PV promoting policies for PV are dominated by FiTs;
  • Besides the existing FiTs in Germany and Spain, the most influent FiTs are in force in Italy, France, Czech Republic and Belgium. In 2009, as depicted in Figure 2, these countries accounted for an important part of the total PV installed capacity.
Figure 2.

New grid-connected photovoltaic capacity in 2009 (source: [11-13]).

But apart from FiTs, there are other concepts for enhancing PV in existence outside of Europe. In particular, the Japanese and Californian residential sectors benefit from investment subsidies:

  • Quite contrary to FiTs, consumer WTP is addressed by investment subsidies because the rebates offered do not totally cover the expenses incurred by PV owners.
  • Although California and Japan only accounted for less than 18% of the 2009 total installed capacity, they are considered to be longer-term growth markets (Figure 3).
Figure 3.

Cumulative photovoltaic installed capacity in 2009 (source: [11, 12]).


The following section describes the promotion policies considered in this paper.

3.1 The German Renewable Energy Act

The German EEG is the main market driver in Germany. The present EEG came into effect in April 2000 and was amended in 2004. In 2008, a new law was passed that provided for adjustments to the FiT amount depending on the market response. The 20-year fixed tariffs granted for new projects decrease each year. The degression rate depends on the plant size and on the total amount of installed capacity. Since 2009, the degression rate is adapted according the yearly installed capacity (Table 1).

Table 1. Overview of German Feed-in Tariffs in 2010 in EUR-ct/kWh (source: [3,17]).
 Plants installed on buildingsBonuses for facades facilitiesFree-standing facilitiesTariff duration (years)Max. promotion cap
 <30 kW30 100 kW100–1000 kW>1 MW   -
2010 (from 1/1 till 30/06)
2010 (from 1/7 till 30/9)34.0532.3930.6525.5526.1520
2010 (from 1/10 till 31/12))33.0331.4229.7324.7925.3720
Annual degression from 1 July 2010
Corridor (adjustment of degression rates)
If the installed capacity is higher than 3500 MW, the degression rate will decrease additionally by 1% on 1 January 2011 (3% in 2012) for each amount of 1000 MW installed that surpasses 3500 MW.
If the installed capacity is lower than 2500 MW, the degression rate will decrease by 1% on 1 January 2011 (2.5% in 2012) for each 500 MW installed less than 2500 MW.

3.2 Japanese Residential Photovoltaic System Dissemination Program and the Japanese Excess Photovoltaic Power Purchase Scheme

Historically, Japan's promotion policies for photovoltaic systems are based on the following steps (Table 2):

  • The first Japanese Residential PV System Dissemination Program was launched in 1994 (JP RPVDP 1994–2005). The programme was combined with low-interest consumer loans and comprehensive PV education and awareness-building activities. The subsidy was granted in three categories: (i) individuals intending to install PV systems in their own houses, (ii) suppliers of housing development complexes or suppliers of houses built for sale and (iii) local public organisations introducing PV systems into public buildings.
  • Similarly to the JP RPVDP 1994–2005, since January 2009, an investment subsidy has been offered for residential systems up to 10 kW. Although no decrease in the subsidy amount per kilowatt was foreseen in 2010, the prices of eligible PV systems have been reduced in the fiscal year (FY)2 2010. Although in FY 2009, eligible systems were to cost a maximum of ¥700 000/kW (approximately €5090/kW), in 2010, the maximum price was set at ¥650 000/kW (approximately €4730/kW). Moreover, eligible systems have to be above a certain efficiency level.
  • Some utilities offered a buy-back programme (net billing) from 1994 to October 2009. Under this voluntary agreement, excess PV electricity was purchased at the same rate as household electricity. Since November 2009, a new Excess PV Power Purchase Scheme has been in operation, guaranteed for 10 years.
Table 2. Japanese incentives since 1994 (source: [18,15]
 Residential PV system dissemination programs (1994–2005)
 Subsidy (¥/kW)Size limit (kW)Subsidy limit (¥)
199550% of investment costs4900 000
19991/3 investment costs4329 000
2000First half of Fiscal year 2000: 270 0004
Second half of Fiscal year 2000: 180 000
200520 0004
 Residential PV system dissemination programs (since 2009)
200970 000<10System price <700 000
201070 000<10System price <650 000
 Excess PV power purchase scheme
2010 (kW)Residential systems <10>10
Level of tariff (¥/kWh)4824

3.3 The Australian Photovoltaic Rebate Programme

The former Australian Photovoltaic Rebate Programme was launched in January 2000 by the Australian Greenhouse Office (Table 3). In 2007, it was renamed as the Solar Homes and Communities Programme. The programme was available for grid and off-grid buildings. A new amendment to the programme announced in May 2007 introduced an increase in the subsidy for the residential sector from $A4000 to $A8000/kW, capped at $A8000 (approximately €4900/kW). The programme came to an end in 2009 and was replaced by a renewable energy target mechanism (Renewable Portfolio Standard).

Table 3. Australian photovoltaic incentives in the residential sector since 2000 (source: [19,20]).
 Australian Photovoltaic Rebate ProgramSolar Homes and Communities Program
Subsidy ($A/kW)Size limit (W)Subsidy limit ($A)
New plantsUpgrading  
20005500> 4508250
2001–200250002500> 4507500
2003–200640002500> 4504000
2007–200980005000> 4508000
From 2009Renewable portfolio standard

3.4 The Spanish Feed-in Tariff (various royal decrees)

The three last and most influential regulations can be described as follows (see also Table 4):

  • Royal Decree 436/2004 (RD 436/2004): Grid-connected PV systems had the option to deliver the PV electricity for a price related to the ‘average electricity tariff’ or to participate in the regular electricity market where PV rates vary on a monthly basis.3
  • Royal Decree 661/2007 (RD 661/2007): The Royal Decree 661/2007 built on the Royal Decree 436/2004 and came into force on 1 June 2007. Tariffs were guaranteed until 371 MW had been installed. Nevertheless, the existence of this cap was only theoretical as when 315 MW were installed; the remaining planned plants still had a year to complete the installation.
  • Royal Decree 1575/2008 (RD 1575/2008): The present (2010) FiT is guaranteed for 25 years and has the following two important features:
    • Setting of an annual capacity cap (yearly rounds);
    • Introduction of a new register known as the ‘Register on the advance allocation of the compensation’.
Table 4. Spanish Feed-in Tariffs in EUR-ct/kWh (source: [21]).
  RD 436/2004RD 661/2007RD 1575/2008):
  1. a

    AET, ‘Average Electricity Tariff’, estimated at the beginning of the year on the basis of the generation costs of 1 kWh. Systems over 100 kW also have the option to participate in the regular market. In this case, photovoltaic electricity is paid by calculating the sum of the market price + an incentive dependent on the AET. In practical terms, this option was not used.

<100 kW Year 1–25Year 1–25 
(5.75 × AETa)
2005: 4244
2006: 44Year 26 on
Year 26 on:35
(4.6 × AETa)
>100 kW Year 1–25Year 1–25 
(3 × AETa)
2005: 21.9941.8
2006: 44Year 26 on
Year 26 on:33.4
(2.4 × AETa)
10–50 MW  Year 1–25: 23 
Year 26 on: 18.4
 Installations on roofs or facades (for commercial, residential or industrial uses) and installations on parking structures   
 <20 kW  2009
All rounds: 34
First round: 34
Fourth round: 32.2
 >20 kW and <10 MW  2009:
All rounds: 32
First round: 31.17
Fourth round: 28.7
 Free-standing facilities   
 <10 MW  2009
First round: 32
Fourth round: 29.09
First round: 28.10
Fourth round: 25.9
Tariff duration Project life timeProject life time25 years
Yearly maximum market (CAP)   2009: 500 MW
Every year, capacity CAP is increased according to the same rates as tariffs are decreased

Fully developed projects have to apply to be registered in the new register, which is open for a number of different annual rounds. Each round has a capacity cap. Every year, the capacity cap is increased in accordance with the same rates as those at which tariffs are decreased. Tariffs are calculated on the basis of the installed capacity in the previous year and in accordance with an algorithm.

3.5 The Italian Feed-in Tariff ‘Conto Energia’

The current main driver in Italy came into effect in September 2005. PV plants up to 200 kW may also apply for net metering. PV plants greater than 200 kW may sell the PV electricity on the wholesale electricity market. In the first phase, called Primo Conto Energia, a yearly cap of 85 and a 1 MW limit on the maximum size of the plant were set. Systems were accepted in rigorous order of submission. Accepted systems received guaranteed rates for 20 years. The tariffs were fixed for 20 years, but each year, the fixed tariff decreased by 5% for the new projects in that year. Systems larger than 50 kW were subject to a tender mechanism. A new law with amendments came into effect in February 2007, and the second phase started under the name Nuovo Conto Energia. The yearly cap of 85 MW was eliminated. The new tariffs are also guaranteed for 20 years, but they decreased by 2% every year after 2008. The policy also foresees higher tariffs if certain special points are accomplished (Table 5).

Table 5. Italian Feed-in Tariffs (EUR-ct/kWh) (source: [15]).
  Primo Conto EnergiaNuovo Conto Energia
 1–20 kW20–50 kW50–1000 kWTariff durationYearly maximum market in MW (CAP)1–3 kW3–20 kW>20 kWTariff durationYearly maximum market in MW (CAP)
2006 44.546492085     
2007/2008Ground-mounted systems     38.436.534.620Until 1200 MW are installed
Buildings (part integrated (1))     42.240.338.420
Buildings (integrated)     4744.242.220
2009Ground-mounted systems 
Buildings (part integrated (1)) 
Buildings (integrated)     4845.143.1 
2010Ground-mounted systems     38.436.534.620
Buildings (part integrated (1))     42.240.338.420
Buildings (integrated)     4744.242.220

The Conto Energia III was approved in August 2010 and will come into force in January 2011 (Table 6).

Table 6. Italian Feed-in Tariffs (EUR-ct/kWh) (continuation) (source: [15]).
 Conto Energia III
1–3 kW3–20 kW20–200 kW0.2–1 MW1–5 MW>5 MW
2011 (from 1/1 to 30/4)Buildings (integrated PV and innovative plants)
2011 (from 1/5 to 31/8)Buildings (integrated PV and innovative plants)
2011 (from 1/9 to 31/12)Buildings (integrated PV and innovative plants)
2012Buildings (integrated PV and innovative plants)
2013Buildings (integrated PV and innovative plants)42.338.435.535.535.5

3.6 Swiss Solar Stock Exchange programmes and the Swiss Feed-in Tariff

Until March 2007, the Swiss PV market (Table 7) was substantially sustained by Solar Stock Exchange programmes (Solarstrombörsen) offered by utilities. The market volume thereby created annually amounts to around 2 MW. Electricity in Swiss Solar Stock Exchange programmes is generated by privately owned PV systems and fed into the public grid (Table 8). Other customers may buy this electricity, paying rates corresponding to PV production costs. On the supply side only, the most cost-effective projects are selected by a bidding process. One of the best-known programmes is the Solar Stock Exchange of the Elektrizitätswerk der Stadt Zürich (EWZ) in Zurich. Bidding processes are open every 1.5 years, with the best offers receiving contracts to sell their PV electricity for 20 years. In March 2007, the Swiss parliament decided to introduce FiTs for plants built after 1 January 2006.

Table 7. Swiss Feed-in Tariffs under the KEV regulation (EUR-ct/kWh) (source: [15]).
Swiss remuneration PV electricity (CHF/kWh)
 Rooftop systemsBuilding-integrated systemsGround-mounted systems
≤10 kW≤30 kW≤100 kW>100 kW≤10 kW≤30 kW≤100 kW>100 kW≤10 kW≤30 kW≤100 kW>100 kW
2009 (with retrospective effect until 2006)0.750.650.620.60.90.750.670.620.650.540.510.49
Tariff duration25 years
Yearly cap16 Mio. CHF
Tariff degression8%
Table 8. Swiss Solar Stock Exchange of the EWZ in Zurich (CHF/kWh) (source: [23]).
Swiss Solar Stock Exchange of the EWZ in Zurich (CHF/kWh)
 Average purchase price for PV operators (CHF/kWh)Tariff duration for PV operators (years)Size limit
  1. EWZ, Elektrizitätswerk der Stadt Zürich.

19971.22010–250 kW
19991.112010–250 kW
20000.952010–250 kW
20060.852010–250 kW
2007–20080.752010–250 kW
20090.572010–250 kW

3.7 The French Feed-in Tariff

The French subsidies scheme is based on the financial law that was approved in 2006. Tariffs are corrected annually in accordance with inflation rates. New tariffs were set in 2010. The tariffs are depicted in Table 9. From 2012, the purchase prices will be reduced annually by 10% from the previous year's rate for the new power plants. The rates are clearly designed to support building-integrated PV systems.

Table 9. French Feed-in Tariffs (source: [14]).
French remuneration PV electricity (EUR-ct/kWh)
 Metropolitan FranceOverseas départements and CorsicaTariff durationYearly capTariff degression
 Base tariffBuilding-integratedBase tariffBuilding-integrated   
Amendment 2010
 Simplified building-integrated (BIPV) plant (>3kW)Fully integrated BIPV in residential, health and education buildingsFully integrated BIPV in commercial/industrial/agricultural buildingsOthers (also ground-mounted systems)Tariff durationYearly capTariff degression
    <250 kW>250 kW   
201042505831.4031.4–37.7 (tariff depends on insolation levels20 years10% after 2012

3.8 The Korean Feed-in Tariffs

Feed-in tariffs have existed in Korea since 2004 (Table 10). The regulation was subject to two important amendments. The first amendment was made in October 2006, the second in October 2008. The second amendment saw the introduction of a cap of 500 MW by the end of 2011 and the announcement of the introduction of the Renewable Portfolio Standard from 2012. In addition to the FiT, an investment subsidy programme has existed since 2002 for systems under 3 kW.

Table 10. Korean Feed-in Tariffs (source: [15,16]).
Remuneration PV electricity in South Korea (WON/KWh)
 <30 kW30–200 kW200 kW-1 MW1–3 MW>3 MW
  1. PV, photovoltaics.

Tariff duration (years)15201520152015201520
Till 30/9/06Buildings and ground mounted716716716716716
Till 30/9/08Buildings and ground mounted711677677677677
1/10/08–31/12/09Buildings and ground mounted647590620563591536561509473429
Ground mounted567514541491511463485440409371
Yearly cap (MW)Total (2006–2011): 500 MW2006–2008: 300 MW2009: 50 MW2010: 70 MW2011: 80 MW  
From 1 June 2012Renewable portfolio standard

3.9 California Solar Initiative

In January 2006, the California Energy Commission (CEC) and the California Public Utilities Commission established the California Solar Initiative, which started in January 2007 and replaced California's Emerging Renewables Program (CA ERP) (see Section 3.12). The goal of the programme is to install 1940 MW by the end of 2016 within a budget of $2.17bn. Two types of incentives are given: the ‘Expected Performance-Based Buydown’, which is paid in dollars per watt, and the ‘Performance-Based Incentive’, paid in cents per kilowatt hour. Residential and commercial incentives are reduced in 10 steps as depicted in Figure 4. Table 11 offers a more detailed depiction of the programme.

Figure 4.

The California solar initiative rebates (source: [22]).

Table 11. California Solar Initiative incentives (April 2010) (source: [22]).
EPBB (dollar/W)PBI (dollar/ kWh)
Incentive based on system's expected performanceIncentive based on system's actual energy produced
  1. EPBB, expected performance-based buydown; PBI, performance-based incentive; PG&E, Pacific Gas and Electric; SCE, Southern California Edison; CCSE, California Center for Sustainable Energy.

  2. a

    Except new constructions.

ResidentialaNon-residentialResidential aNon-residential
Systems less than 50 kWSystems less than 50 kWAll sizesAll sizes
Incentive level
Incentive level depends on which investor-owned utility the customer belongs to (PG&E, SCE or CCSE)
PG&E: $0.65/WPG&E: $1.10/WPG&E: $1.10/WPG&E: $0.09/kWhPG&E: $0.15/kWh
SCE: $1.90/WSCE: $1.55/WSCE: $2.30/WSCE: $0.26/kWhSCE: $0.22/kWh
CCSE: $1.90/WCCSE: $0.65/WCCSE: $0.35/WCCSE: $0.09/kWhCCSE: $0.15/kWh

3.10 The United States photovoltaics investment tax credit

The Federal Energy Policy Act of 2005 includes a federal tax credit amounting to 30% of the total system cost of a solar system. The credit is available to homeowners and commercial owners for solar systems installed from 1 January 2006 to 31 December 2008. Unlike a deduction, which reduces the amount of income subject to tax, this federal tax credit directly reduces the amount of income tax paid. For homeowners, the tax credits are limited to $2000 per system. In October of 2008, the investment tax credit (ITC) was extended for 8 years with the residential limit being raised, and utilities are now also able to receive the ITC. This regulation turned into cash rebates of more than €2/watt for commercial systems and around €1/watt for residential customers [24].

3.11 Other past programmes

3.12 California's Emerging Renewables Program

The CA ERP was managed by CEC and started in March 1998.4 Five tiers were planned. The maximum buydown was set for the first tier at $3000/kW, declining $500/tier to $1000/kW in the final tier. The tiers were not subject to a specific time frame, but each block would be available until exhausted. Because of the disappointing number of applications, the programme concept was changed in 2001. From 2003, the programme focussed on small and residential systems under 30 kW [25].

3.13 The Italian photovoltaics roof programme ‘Tetti fotovoltaici’

The Italian PV roof programme ‘Tetti fotovoltaici’ was launched in March 2001. The second phase of the programme was managed by the 19 Italian regions through local announcements. As a consequence, each region adopted its own level of incentives. Some regions adopted a 70% incentive, whereas others adopted 65% with a maximum investment cost ranging from €7 to €7.5/W depending on plant size. The maximum investment subsidy permitted was 70% of the total cost [26].

3.14 The German financing programmes: the 100 000 Roofs Programme, ‘Solarstromerzeugen’ and renewable energies ‘standard’

The German ‘100 000 Roofs Programme’ was launched in 1999 and came to an end in June 2003. Within this programme, soft loans were put at the public's disposal. Initially, the interest rate was set at 0% for payback over 10 years. The initial response to the programme was rather disappointing. In the last period of the programme, PV installations with more than 1 kW were eligible for the programme, and the interest rate was still 4.5 points under the habitual market. The objective of the programme was to promote 100 000 plants with an average size of 3 kW (i.e. 300 MW) and was fulfilled at the end of the programme. The programme ‘Solarstromerzeugen’ started in January 2005. Similar with the previous 100 000 Roofs Programme, it was managed by the KfW bank and basically aimed at private persons. In 2009 ‘Solarstromerzeugen’ was turned into the ‘Renewable Energies Standard’ programme. Table 12 shows the guaranteed rates in both programmes.

Table 12. ‘Solarstromerzeugen’ and ‘Renewable Energies Standard’ conditions (source: [25, 41]).
 ‘Solarstromerzeugen’ (May 2007)‘Renewable Energies Standard’ (Nov 2009)
  1. a

    Interest rate dependent on creditworthiness, number of repayment years, number of years with exclusion of repayments and number of years with fixed interest.

Interest rateaNominal between 3.9% and 4.4%Nominal between 1.2% and 6%
RepaymentUp to 20 years (max 3 years with exclusion of repayment)Up to 20 years (max 3 years with exclusion of repayment)
Maximum loanUp to 100%. Max €50 000/projectUp to 100%. Max €10 Mio/project


A systematic evaluation of the programmes is intended by the comparison of their core features to analyse the success factors of the programmes. The core features to be compared are

  1. Dissemination effectiveness
  2. Costs to the public
  3. Development of system prices over time
  4. Exhaustion of consumer WTP
  5. Profitability for the consumer

Table 13 provides a summary of the programmes that have been considered in the comparison.

Table 13. Features of worldwide photovoltaic promotion policies (source: own researches, updated until end of 2009).
ProgrammeCountryType of programmePeriodInstalled capacity in MW (at the end of 2009)Status
  1. a

    As of 20 December 2009, 91 244 systems were approved for subsidy. The average power system was 3.8 kW [27].

Germany's 100 000 Roofs ProgramDEInvestment-focussed financial incentives with one upfront payment1999–2003345Finished
Japanese Residential PV System Dissemination Program (1994–2005)JP1994–2005992Finished
Japanese Residential PV System Dissemination Program (2009–2010)2009–2010337aOngoing
California's Emerging Renewables ProgramUSA1998–2006146Finished
Italian PV roof programme ‘Tetti fotovoltaici’IT2001–200525Finished
Australian Photovoltaic Rebate ProgrammeAUSSince 200078Ongoing
California Solar InitiativeUSAGeneration-focussed financial incentives with one upfront payment/investment-focussed financial incentives with one upfront paymentSince 2007449Ongoing
German Renewable Energy Act (after the first amendment)DEGeneration-focussed financial incentives with multiple paymentsSince 20048698Ongoing
Spanish Feed-in Tariffs (after the first amendment, ‘Royal Decrees’)ESSince 20043406Ongoing
Italian Feed-in Tariff ‘Conto Energia’ISince 2005759Ongoing
French Feed-in TariffFRSince 2006293 (+3438 MW in pending applications)Ongoing
Korean Feed-in TariffKOSince 2005303Ongoing
Swiss Feed-in TariffCHSince 2009179 (including pending applications)Ongoing
Swiss (EWZ) Solar Stock Exchange ProgrammeCHVoluntary generation-focussed financial incentives with multiple paymentsSince 19969Ongoing

4.1 Dissemination effectiveness

In this study, the dissemination effectiveness is basically evaluated according to values relating to installed capacity and participation rates.

Figures 5-7 depict the evolution of installed grid-connected PV power at the end of 2009.

Figure 5.

Yearly grid installed capacity in the biggest photovoltaic markets (source: [4, 28, 29]). HTDP, 100 000 Roofs Programme; EEG, Renewable Energy Act; RD, Royal Decree.

Figure 6.

Yearly grid installed capacity in leading photovoltaic markets (source: [11, 30]). FIT, feed-in tariff. RPVDP, Residential PV System Dissemination Program; FIT, feed-in tariff.

Figure 7.

Yearly grid installed capacity in the biggest photovoltaic markets (source: ([14, 19]). FIT, feed-in tariff; PVRP, Photovoltaic Rebate Programme.

Although demand on the German, Italian and French markets increased in 2009, demand was dramatically down in leading countries such as South Korea and Spain, as a consequence of the introduction of yearly caps on installed PV.

Immediately apparent is the big difference between Germany's annual installation volume and those of other countries. Although the annual installation in Germany for 2009 was 3811 MW, the second largest market in terms of annual installation was Italy with 681 MW, approximately a sixth of the German demand. Figure 7 shows the considerable annual market increase in France and Australia when new regulations were introduced in 2007.

Figure 8.

Total and relative installed capacity in each photovoltaic policy programme (source: own calculations).

On the short term, the influence of promotion polices on the installed capacity can be summarised as follows:

  1. A shortage or oversupply in the local supply chain caused by increasing demand or collapsed demand in large markets brings about alterations in local markets. This effect can be seen in Figure 5 in Germany. Because of the introduction of a limit on annual installed capacity in Spain in 2008, the market was characterised by an oversupply of modules, leading to a price reduction that dramatically increased the demand in other markets, principally Germany, Italy and France.
  2. Deviation between the real size of a local market in some countries and the size of the local market, which had been in the absence of a demand, diverted to other more profitable large markets. This effect can be seen in Figure 6 in Japan. The decrease in demand between 2005 and 2007 had two causes:
  3. Firstly, the existing subsidy expired in 2005 (see Section 4.2).
  4. In addition, the Japanese industry moved to cover the growing demand in Germany after the amendment of the Renewable Energy Act in 2004.

Figure 8 shows that Germany is leading not only in absolute installed power but also in relative installed capacity. The largest relative installed capacities after Germany are achieved in Spain, France, Japan and Italy. However, to get an idea of the social impact created, other parameters such as plant sizes and time frames have to be analysed. As is clear from Figures 6 and 7, the capacities in France and Spain were only achieved in a very short period and only as a result of the introduction of overly generous legislation. In Germany and Japan, on the other hand, the levels have been reached gradually, as a result of continuous and predictable laws. Interestingly, the Japanese and German solar landscape is dominated mainly by the residential sector, which is not the case in Spain and France, where large plants prevail (ground-mounted in Spain and roof-mounted in France).

In summary, an overly generous policy essentially favours the entry of professional investors, leaving aside the general public. Clearly, a subsidy policy trying to attract also the interest of ordinary people is more resistant against fluctuations of subsidies and crisis because other factors besides profitability, such as environmental awareness, are crucial. Although this issue is discussed later in Section 4.4, it may be noted here that this was one of the reasons why the Japanese market did not collapse in 2005 despite the disappearance of subsidies.

4.2 Costs to the public

In this section, we will discuss two aspects: (i) the total amount of public money invested as compared with total power installed (depicted in Figures 9 and 10) and the public money received over time from a demand side's point of view (depicted in Figures 12-14).

Figure 9.

Actual public expenditures until 2009 (until 2008 for the California Energy Commission Program) in different regions because of different photovoltaic incentives (source: own calculations).

Figure 10.

Total public costs of paying feed-in tariffs for plants installed between 2004 and 2009 (source: own calculations).

In the case of investment subsidies public costs are calculated by multiplying investment subsidy by capacity installed. By definition, FiTs have a direct influence on electricity rates. For this reason, we decided to subtract the sum of the value of conventional electricity avoided to calculate the cost to the public generated by payments of FiTs. Thus, the total cost to the public has been calculated using the following formula:

display math(1)

where CPFiT is the cost to the public per kilowatt of PV installed capacity within the FiT, Y to i the years considered in the calculations (in the present study, we have considered the years from 2005 to 2009), p the guaranteed years for the FiT in the year y, FiTi the level of FiT in the year i, EPV the PV energy yield, ep the (wholesale or retail) market electricity rates and d the discount rate.

The calculations take into consideration the assumptions outlined in Tables 14 and 15, which assumes average values.

Table 14. Annual photovoltaic plant energy yield (kWh/kW).
math formulaAnnual PV plant energy yield (kWh/kW) 
IInvestment costs (€/kW)
RRebates (€/kW)
OCAnnual operation and maintenance costs1.5% of investment costs
kInflation-adjusted imputed interestVariable over time
nLifetime of the system25 years
degYearly degradation of energy yield0.5%
Table 15. Assumptions.
 Annual growth rate for market (wholesale or retail) electricity pricesDiscount rate (d)PV plant energy yield (EPV) (kWh/kW)Energy yield reduction because of building-integrated photovoltaics
South Korea1100

The controversial question is, what is the value to the public of avoided conventional electricity? Most studies are carried out on the basis of wholesale electricity rates. However, given the following points, it would, from the public's point of view, seem more reasonable to use retail electricity rates:

  • Wholesale electricity rates are more suitable as indicators of potential revenue losses to utilities;
  • The general public is provided with electricity at retail rates;
  • PV electricity could be competitive for end users in the near future;
  • By virtue of ‘merit order effect’, PV electricity can put downward pressure not only on wholesale but also on retail electricity prices.

The merit order effect has recently attracted a great deal of attention, especially in Germany, and there has been a great deal of discussion of the issue of whether the generation of PV electricity can affect the retail market in the same way as the wholesale market and if the electricity price reduction can outweigh the costs of incentives. In fact, if the merit order effect is taken into consideration, the calculation of the costs to the public of FiTs has to include the totality of electricity traded in the wholesale market multiplied by the wholesale electricity price reduction. This amount should be subtracted to Formula (1). Nevertheless, not only is there insufficient data concerning this matter for the years, which have been considered in this study, but there is also the possibility that the merit order effect leads to rises in electricity prices because of the fixed capital costs of discontinuing working conventional power plants and also to rising revenue losses. For these reasons, we decided not to consider the merit order effect. However, if large amounts of PV electricity are fed into the grid (as is the case in Germany), this phenomenon should be included in future research work. Disregarding public savings because of the merit order effect, the costs to the public are depicted in Figures 10 and 11. Because the retail electricity rates in Germany are high in comparison with Spain, the difference between considering wholesale or retail electricity rates is considerable. In fact, if retail prices are considered, the costs to the German public are almost halved and thus almost the same as in Spain. This is an interesting outcome considering Germany's poorer energy yield and larger amount of installed capacity and Spain's higher FiTs.

Figure 11.

Public costs for each kilowatt of installed capacity between 2004 and 2009 caused by paying feed-in tariffs (source: own calculations).

Figure 12 shows the evolution of investment subsidies in different years for California, Japan and Australia. It shows that Australia was oversubsidized in recent years in comparison with other countries. The rebates in California and Australia in 2005 had the same level as Japan reached in 1999. Furthermore, the rebates in California in 2008 are higher than the rebates in Japan in 2000. Figure 13 shows the rebates offered in different countries through FiTs for 4 kW PV plants in the residential sector. Figure 14 shows the rebate offered in the same countries for building-integrated plants. Curiously, in the three countries for which investment subsidies were considered (Australia, Japan and California), there is no differentiation between building-integrated PV plants and simple on-roof PV plants. This distinction was taken into consideration in Germany until 2007 with a special EUR-ct 5/kWh bonus for facades, is common in Italy and Switzerland, is especially generous in France and was ignored in Spain until 2009.

Figure 12.

Development of rebates in the residential sector over time in various countries (source: [20,24,18]).

Figure 13.

Development of feed-in tariffs in terms of €/kW for a 4-kW building-integrated photovoltaic plant in the residential sector over time in various countries (source: authors' calculations).

Figure 14.

Development of feed-in tariffs in terms of €/kW for a 4-kW plant in the residential sector over time in various countries without considering building integration (source: own calculations).

Altogether, the most stable PV Markets until now, Germany and Japan have not spent comparable amounts of public money. Although Germany has spent at least €2000/kWp, Japan has spent less than €500/kWp. Nevertheless, it is a fact that the German policy together with all other European FiTs have led to high volumes of installed capacity, which put price pressure on prices on a worldwide global level. But, what was the effect on country level? Did the public PV expenditures lead to expected technology price reductions? Not always as it is seen in the next chapter.

4.3 Development of system prices over time

According to previous studies [25, 26], different incentives lead to different cost reductions. Although the module prices are determined essentially by international and global market laws, installation costs are mostly determined by the local market. In this sense, module prices cannot easily be influenced by local PV policies. Obviously, large PV markets such as Germany's, which account for a major part of the annual world market, are, exceptionally, capable of influencing the worldwide module market prices. Therefore, local policies have a strong influence on the development of installation costs.

Figure 15 shows PV system price evolution in different countries for the residential sector. For the sake of better comprehension of the price evolution, a theoretical price evolution following a reduction of 20% for each doubling of world-cumulated installed capacity (learn curve) is also depicted. A dramatic price decrease occurred in 2009 because of an excess of demand caused by the collapse of demand in Spain. Nevertheless, in 2009, prices were higher than those to be expected from an experience curve with a 20% learning rate, except in Germany. The high demand caused by the beginning of the amended EEG in Germany in 2004 caused an increase of prices both in modules worldwide and in installation in Germany.5 Although the global dynamic component of global costs needs more investigation, it can be stated that the facts follow classic economic theory: ‘The short term development in an imperfect market—as it usually exists for an emerging new technology—is that costs increase if demand increases. Yet, this leads to the emergence of new companies, competition increases and costs drop. In the long run, prices will decrease till a perfect competitive market is reached’ [25]. This explains the global price increase tendency in the period 2005–2007, which was explained in most cases by the increase of module prices because of a silicon shortage. But in fact, markets may also have experienced an increase of installation costs (Figure 16). In the case of Germany, an increase occurred in 2004, although module prices decreased. The same thing occurred in 2007 and 2009. This shows the existence of an imperfect market: a certain sector is increasing its benefit margins, whereas the final pricing does not reflect the learn rates experienced by the sector as a whole. Japan has experienced a parallel development of module and non-module costs over time, which indicates a more sustainable market (see Figure 17). In principle, the Californian concept differs from the other investment subsidies analysed as the diminution of incentives has occurred according to the installed capacity and not in chronological years (see Figure 4). Theoretically, according to this concept, the incentives are reduced consistently with the cost reductions caused by the experience gained through accumulation of PV plant installations. Recent studies [31] show that the design of the programme and the reduction of incentives have been carried out in an optimal manner taking into account the effect that the experience has on the price reduction. Wiser et al. [24] analysed the cost reduction of prices in California and came to the conclusion that the dispersion (range) in PV retail prices in 1 year has been decreasing since the year 1998, which means that markets are maturing over time because of (i) increasing competition between installers and module manufacturers and (ii) better-informed consumers.

Figure 15.

Photovoltaic system price reductions in the residential sector over time (source: [11, 24], own researches). System costs do not include value added tax and charges after installation.

Figure 16.

Evolution of module costs and non-module costs in Germany (source: [28]).

Figure 17.

Evolution of module costs and non-module costs in Japan (source: [28]).

Summing up, public subsidies have led in the long term to PV price reductions in all countries. However, the right amount of public incentive is extremely important to convert the public money into a maximum of installed capacity. Price reductions should result in an increase of demand and should not be absorbed by the industry.

4.4 Exhausting and increasing consumer willingness-to-pay in the residential sector

A good programme design must take full account of consumer WTP. Subsidies should be the difference between the real system prices and the amount that the consumer is ready to pay. It is of fundamental importance that WTP is estimated correctly and that subsidies are not made higher than necessary. In fact, each programme should have the following objectives: (i) to align post-incentive costs to consumers with consumer WTP in various market segments so that the targeted markets will grow, without over-incentivizing systems and causing a boost-bust cycle, and (ii) to increase market size over time by reducing the price of systems, in particular, by reducing market barriers and encouraging innovation and competition.

Obviously, it only makes sense to analyse aggregate WTP. As WTP, defined as the maximum amount that a person is ready to pay for a particular available alternative, varies from person to person, the aggregated WTP is necessary for an overall view. However, as the customer base is not homogeneous, representing all of a country with one simple WTP could misrepresent what is taking place on the ground. Consequently, Figures 20 and 21 can only be seen as a comparison between countries and not as a detailed analysis of each country. Nonetheless, as this issue will have to be investigated in detail if we are to gain insights about potential WTP and market evolution dynamics, it definitely remains a matter for further research.

In the present study, the authors based their analysis of WTP on system and energy prices. Obviously other non-solar factors such as a nuclear accident or permanent changes in preferences are determinant for WTP and differ from country to country. These non-solar factors are not included in the WTP for a PV system analysed in this study. Figure 186 depicts the development of cost for end users who decided to buy a PV system within the Californian ERP and within the Japanese and Australian programmes. Californian PV buyers were paying less in 2008 than they had to in 2000. However, the general recent trend in California has been, as in Japan, that the amount of money required of PV investors for their PV plants has increased each year. This is not the case in Australia, where the trend of recent years seems to have been an annual decrease. Given that price reductions in Australia are not very marked (Figure 15), this indicates that there has been no alignment of post-incentives to consumers and WTP. This effect is also shown in Figure 19, which summarises the situation in the year 2009. Although most of the Japanese PV installed capacity in 1994 was financed with public money, the percentage of public-financed PV installed capacity was minimal in 2009. This trend is much less pronounced in California but quite the opposite in Australia. Figures 20 and 21 explain the Japanese PV subsidy policy. At the beginning, PV prices were far higher than customer WTP, necessitating high subsidies. The subsequent price decrease over time together with an increase of WTP (because of market diffusion) resulted in lower subsidies. The final objective was the convergence of system prices and the money to pay for a system, that is, a sustainable market with increasing demand without any subsidies. Although the amount of money paid by each PV owner has remained almost constant, the installed capacity between 1994 and 2009 has increased continuously, with the exception of 2007. Although there were minimal differences in the private money required for a PV plant between 2006, 2007 and previous years, a demand decrease occurred in 2006 and 2007, coinciding with the end of the subsidies (Figure 21). Although part of the Japanese demand shifted towards the German market, as argued in Section 'Dissemination effectiveness', the declining demand for PV systems between 1996 and 1998 could be taken as an indication that public support is indispensable (although this is minimal as depicted in Figure 12).

Figure 18.

Evolution of money to pay for a photovoltaic system in the residential sector in different countries (source: authors' research).

Figure 19.

Evolution of the grid-connected photovoltaic installed capacity through public and private money in the residential sector in different countries (source: authors' research).

Figure 20.

System costs versus costs for the applicant per kilowatt in Japan, over the years with existing national photovoltaic subsidy (authors' calculations).

Figure 21.

System costs versus costs for the applicant per kilowatt in Japan, over the years without existing national photovoltaic (PV) subsidy (source: [32, 33], own calculations).

Voluntary PV incentive programmes based on WTP deserve special attention. Figure 22 shows the evolution of the programme offered by the EWZ in Zurich (see Section 3.6), which is considered one of most important in Switzerland. The price paid per kilowatt hour by programme participants has been reduced considerably from the beginning of the programme in 1996 to the present, whereas the household electricity rates have remained almost constant. Nevertheless, the rate of participation in the programme has not increased over the years, remaining at a constant 15% of EWZ clients.

Figure 22.

Installed capacity within the Elektrizitätswerk der Stadt Zürich Exchange programme (source: [23]). PV, photovoltaics.

A central point of this paper was discussed in this chapter: the convergence of WTP (expressed as the money paid by a private to install a PV plant) with system prices. The achievement of convergence of WTP and system prices is considered by the authors as the key diffusion factor towards a sustainable market. Definitely, for the convergence of WTP with system prices, not only a dynamic reduction of incentives over time is necessary. The combination of a minimal investment subsidy and the encouragement to high self-consumption of PV electricity (as it occurs in Japan within the Excess PV Power Purchase Scheme) could be a way towards the convergence of WTP and system prices. This would lead to sustainable market dynamics and would avoid overheated markets and market collapses. In fact, overheated markets and market collapses (as in Spain) were caused by excessive profit margins.

4.5 Profitability for the consumer

4.5.1 Photovoltaic electricity generation costs in the residential sector

This chapter deals with the following question: How important have economic margins been in promotion policies? Generation costs have been taken as an indicator of the economic profitability, following arguments in recent studies [34]. In the residential market, internal rate of return, net present value and other indicators are not enough for the commercial success of PV plants. Nevertheless, it seems crucial to compare two influencing factors that occur at the same time: the conventional household electricity retail price and the PV generation costs. Generation costs in this study have been calculated using the following formula [35]:

display math(2)
display math(3)

In most studies, it has been customary to use an imputed fixed interest rate for the analysis of the economic feasibility of PV plants. However, the resulting value of the generation cost depends largely on the chosen imputed interest. Following Staffhorst [36], as for other investments, we will consider the imputed interest of a PV investment as consisting of the following parts.

display math

where k is the imputed interest, i the low-interest rate or general market risk and r the interest rate for specific risk of the investment.

Both the low-interest rate i and the interest rate for a specific risk of the investment undergo change over time and in different countries. Following the approach of Staffhorst [36], the calculated imputed interest in the different countries is depicted in Figure 26.

Figures 23 and 24 consider the ratio between household electricity prices and PV electricity generation costs. When average household electricity prices are taken into account, Australia, California and Japan have less favourable profitability margins than Germany, Italy and Spain, even if no account is taken of any subsidy. However, household electricity price policies can be determinant for the development of PV. In California, for example, tiered and time-of-use (TOU) rate structures have enabled and continue to enable a subset of customers to purchase systems with a profitable return on their investment. Although TOU tariffs are also common in Japan, in Australia, most general customers have flat rates, but most PV owners benefit from TOU tariffs. Because peak demand is expensive (for utilities and for customers) and peak pricing is highly coincident with solar PV electricity, customers with access to a TOU tariff have an additional incentive to install a PV system. To give an idea of the diversity of the various markets, Table 16 provides an overview of the framework of each country. Obviously, different country conditions make the investment decision also depend on other factors (besides to conventional electricity prices). In this sense, favourable access to capital (favourable mortgages), high available household income and of course the possibility of access to TOU tariffs can be decisive. Favourable conditions for PV investments in the residential sector are given in Japan: high household income, favourable mortgages and regular use of TOU.

Table 16. General country data.
 Availability of TOU tariffsRetail electricity prices (€/kWh)Typical household electricity consumptionNet meteringAverage household income (€/year)Typical mortgage interest rate (%)
  1. a

    From 1 January 2011, all suppliers have to offer time-of-use (TOU) tariffs.

  2. b

    Data of California's two largest electric utilities, Pacific Gas and Electric (PG&E) and Southern California Edison (SCE).

AustraliaAvailable and in common use among PV ownersFlat tariffs: 0.08–0.148000 kWh/yearIn some states27 0806
Most household customers have flat ratesPeak tariff (TOU) up to 0.25
Some jurisdictions have higher summer tariffs
SpainAvailable0.133272 kWh/yearNo24 5253–5
GermanyAvailable but not usuala0.214000 kWh/yearNo37 5003.5
JapanAvailable and in common use0.13–0.183463 kW/yearYes40 6433.5
ItalyAvailable0.252700 kW/yearYes36 0005
CaliforniaAvailable and in common useFlat rates varies from 0.11 to 0.4611 040 kWh/yearYes37 3804.3–5.6
Summer peak period reaches 0.62b
Figure 23.

Photovoltaic electricity cost effectiveness for household consumers without including subsidies in different countries in 2008 (source: [19, 28, 32, 33, 37-39]), own calculations).

Figure 24.

Photovoltaic electricity cost effectiveness for household consumers with subsidies in different countries in 2008 and 2009 (source: [19, 28, 32, 33, 37-39], own calculations). Japan 08, Japan in 2008 (no subsidies); Japan 09 (NIS + EPP), Japan in 2009 under the new investment subsidy and the Excess PV Power Purchase Scheme; California 08, California in 2008; Australia 08, Australia in 2008; AUS (08 BP), Australia in 2008 under Bulk Purchase Prices.

The high average household electricity prices in Germany and Italy enhance the competitiveness of PV for the general public, which means that despite the higher or similar PV electricity generation costs in Italy, California or Australia, the ratio between household electricity prices and PV electricity generation costs is more favourable in Germany (Figure 23). If subsidies are considered, Japan, California and Australia were in 2008 in the same range of profitability (compared with household electricity prices) as depicted in Figure 24. Nevertheless, a considerably higher amount of capacity was installed in Japan in that year. Consideration of the additional savings of Californian PV users due to net metering and TOU tariffs made it possible to identify a higher WTP in Japan. Given the high price of household electricity in ‘FiT countries’, policy makers should consider providing TOU tariffs as an additional incentive for PV operators. Obviously, there are a lot of decisive parameters affecting the profitability of a PV investment. Among others, the solar resource is listed in this analysis as an ‘assumption’. Average values have been taken, but the solar resource determines the math formula (PV Energy Yield) and consequently the profitability. However, a change in insolation would only be relevant to the results in the cases of Australia and Japan. This is because Germany, Spain and Italy are within the range of profitability in any case (after adding the FiTs). In California, the insolation variability due to different locations is relatively small and does not change the economic value of PV electricity that generated very much. Even considering its area with greater radiation, Japan would be in the same range of profitability as California or Australia. In Australia, the most decisive factor regarding profitability was the bulk purchases, which reduced the costs significantly. Within bulk purchase, households signed up for a low-cost system on the basis of evidence of sufficient local interest (typically 50 homes) [19].

The importance of the imputed interest considered is obvious in Figure 25: the PV electricity generation costs in Germany and Australia are similar in 2009 even without consideration of any investment subsidy or FiT. This is due to the fact that the cumulated experience in Germany leads to lower imputed interest rates than are depicted in Figure 26. Together with the lower German PV investment prices, the PV electricity generation costs in Germany had the same results as in Australia despite the higher Australian insolation conditions. In this analysis, the authors considered the variability of the imputed interest to outline the variability of the electricity PV generation costs.

Figure 25.

Evolution of the generation costs, taking into account a variable imputed interest rate (source: authors' calculations).

Figure 26.

Inflation-adjusted imputed interest rate in the different countries of the study (authors' research).

In summary, insolation is often set as market attractiveness indicator. Nevertheless, the real decisive factor for the calculation of the generation costs is the market diffusion level. Market diffusion determines investment prices and interest rates. Both have a big influence on the generation costs. Policy makers should take this issue into account in order not to set too high incentives. In the residential sector, the retail electricity prices are often an important reference for a PV investment. In this sense, policy makers should consider providing TOU tariffs as additional incentive for PV operators. Of course, there are other possibilities to consider the retail electricity prices as part of the promotion of PV; in fact, the PV energy self-consumption has been subsided for some time in some countries. That is analysed in the next chapter.

4.5.2 The promotion of photovoltaic energy self-consumption

The promotion of PV electricity self-consumption is important because it equates the PV generation costs and the household electricity prices. Although it is too early to analyse the effects of the promotion of PV energy self-consumption, its study should be an important part of future research, given that recent studies [40] suggest that in the residential sector, grid parity7 will happen in the next decade. In all previous figures and sections promoting PV, energy self-consumption has not been taken into account. However, this point is of vital importance for several reasons:

  • Because it saves costs for the public;
  • Because it is an important marketing factor;
  • Because it provides a market trial for the case of high penetration PV on the network, as in the case where grid parity might be reached.

Table 17 presents the most important regulations regarding PV energy self-consumption.

Table 17. Photovoltaic energy self-consumption in different countries.
Country/regionRegulation applied
GermanyIn the framework of the EEG, self-consumed energy in 2010 is remunerated with about EUR-ct 8 more than injected energy for plants >30 kW. The detailed remuneration guaranteed for 20 years from July 2010 include the following:
Plants up to 30 kW EUR-ct 20.88/kWh
Plants up to 100 kW EUR-ct 19.27/kWh
Plants up to 800 kW EUR-ct 17.59/kWh
ItalyPlants <20 kW receive 5% higher feed-in tariffs if more than 70% of the energy produced is self-consumed. Moreover, self-consumed energy in plants <200 kW makes the plants eligible for net metering conditions. Self-consumed energy is rewarded with bonuses for the following year. Nevertheless, self-consumed energy also receives the effective feed-in tariff.
CaliforniaNet metering is applied. Because of the existence of non-time-differentiated (i.e. ‘flat’) rates and a time-of-use rates for household electricity the effect of net metering strongly depends on the chosen electricity rates.


The following are the major conclusions of this analysis:

  1. If financial incentive programmes are implemented over a reasonable time frame, they work with respect to both significant price decreases and increases in quantities;
  2. There are remarkable differences regarding the economic efficiency of promotion programmes for PV. In fact, we consider that Japan in the late 1990s and early 2000s has been the only market without oversubsiding. Excessive investment subsidies or FiT distort the market and reduce the acceptance of PV because of high public costs and low effectiveness of PV diffusion;
  3. FiT schemes and also investment subsidies and combined concepts are able to increase the market penetration and the diffusion of PV systems. Investment subsidies are especially relevant in the context of optimising the own use of PV electricity generated;
  4. In the markets for PV systems, some price volatility could be observed over time because of adaptation of supply and demand. More precisely, because of temporarily overheated demand due to rather high financial support, for example, in Germany in 2005, prices for PV even increased for some time. Yet, in the long term, there has been clear evidence that competition and market forces work. For example, the emergence of Chinese manufacturers has led to an important stimulation of the worldwide market;
  5. A major problem was that obviously, policy makers were often ignorant with respect to perceptions from scientific analyses. So often, higher financial support was provided than necessary, and overall, too much money has been and is spent for the promotion of PV. Such high tariffs has, for example, in Spain and the Czech Republic, led to skyrocketing demand followed by a full standstill in the years following;
  6. Promotion systems must on the one hand consider customers' WTP and on the other hand include a well-defined dynamic component, which considers the effects of Technological Learning. In this context, capacity corridors, as were introduced in Germany, are essential. This tool allows predictable legislations and the correction of incentive payments without generating boom-bust cycles as in Spain in 2009;
  7. So, more important than the achievement of cost effectiveness is the convergence of system costs and consumers' WTP. Although the profitability was the main driver in countries whose main promotion policy was a FiT (e.g. Germany and Spain), in Japan, with a predominant investment subsidy, the main driver was a higher WTP;
  8. So, it should by no means be an objective of a financial incentive programme to address large investors with attractive return-on-investments;
  9. With respect to the future, the most important perception is, with looming grid parity, a major challenge will be to link incentives for the effective own use of PV with market-based prices for feeding PV electricity into the grid. This investigation is left for future research work.


We would like to thank our anonymous reviewer for providing valuable comments and suggestions that have improved the quality of the work.

  1. 1

    1000 Rooftop Programme.

  2. 2

    The Japanese Fiscal Year (abbreviated as FY) runs from 1 April to 31 March of the following year.

  3. 3

    In fact, the option of participation in the regular electricity market was not used.

  4. 4

    From 1 January 2007, rebates for PV under the CA ERP are replaced by the state's California Solar Initiative.

  5. 5

    In this analysis, factors affecting the production chain as the increase of silicon prices because of shortage have not been extracted.

  6. 6

    In this chapter, the analysis does not consider FiT because FiT aims to cover the full costs of the PV plant disregarding the WTP.

  7. 7

    ‘Grid parity’ refers to the time when PV electricity will be competitive for end users.


ProgramCountryType of programPeriodInstalled capacity in MW (at the end of 2009)
German 100 000 Roof ProgramDEInvestment-focussed financial incentives with one upfront payment1999–2003345
Japanese Residential PV System Dissemination Program (1994–2005)JP1994–2005992
Japanese Residential PV System Dissemination Program (2009–2010) 2009–20103371
California's Emerging Renewables ProgramUSA1998–2006146
Italian PV Roof Program ‘Tetti fotovoltaici’IT2001–200525
Australian Photovoltaic Rebate ProgramAUSSince 200078
California Solar InitiativeUSAGeneration-focussed financial incentives with one upfront payment/investment-focussed financial incentives with one upfront paymentSince 2007449
German Renewable Energy Act (after the first amendment)DEGeneration-focussed financial incentives with multiple paymentsSince 20048698
Spanish Feed-in Tariffs (After the 1st amendment) ‘Royal Decrees’)ESSince 20043406
Italian Feed-in Tariff—‘Conto Energia’ISince 2005759
French Feed-in TariffFRSince 2006293 (+3438 MW in pending applications)
Korean Feed-in TariffKOSince 2005303
Swiss Feed-in TariffCHSince 2009179 (including pending applications)
EWZ Swiss Solar Stock Exchange ProgramCHVoluntary generation-focussed financial incentives with multiple paymentsSince 19969

The major objective of this study is to analyse the major PV markets over time to identify the effects caused by the two main promotion schemes: the achievement of economic profitability by means of FiTs or the use of the WTP in investment subsidies. With looming grid parity, a major challenge will be to link incentives for the effective own use of PV with market-based prices for feeding PV electricity into the grid.