Financial incentives for photovoltaics are incentives offered to electricity consumers to install and operate solar-electric generating systems, also known as photovoltaics (PV).
Governments offered incentives in order to encourage the PV industry to achieve the economies of scale needed to compete where the cost of PV-generated electricity is above the cost from the existing grid. Such policies were implemented to promote national or territorial energy independence, high tech job creation and reduction of carbon dioxide emissions which cause climate change. When, in a given country or territory, the cost of solar electricity falls to meet the rising cost of grid electricity, then 'grid parity' is reached, and in principle incentives are no longer needed. In some places, the price of electricity varies as a function of time and day (due to demand variations). In places where high demand (and high electricity prices) coincide with high sunshine (usually hot places with air conditioning) then grid parity is reached before the cost of solar electricity meets the average price of grid electricity. As of 2022, in many jurisdictions, incentives have been significantly replaced by auctions as the cost of electricity produced by PV has indeed fallen below the price of electricity bought from the grid.
Mechanisms Incentive mechanisms are used (often in combination), such as: 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. Solar Renewable Energy Certificates (SRECs)
Investment subsidies
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.
Feed-in Tariffs (FiT)
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 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
"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.
Solar Renewable Energy Credits (SRECs)
Alternatively, SRECs allow for a market mechanism to set the price of the solar generated electricity subsidy. In this mechanism, a renewable energy production or consumption target is set, and the utility (more technically the load serving entity) is obliged to purchase renewable energy or face a fine (Alternative Compliance Payment or ACP). The producer is credited for an SREC for every 1,000 kWh of electricity produced. If the utility buys this SREC and retires it, they avoid paying the ACP. In principle this system delivers the cheapest renewable energy, since the all solar facilities are eligible and can be installed in the most economic locations. Uncertainties about the future value of SRECs has led to SREC contract markets long-term to give clarity to their prices and allow solar developers to pre-sell/hedge their SRECs.
Smart meters allow the retail price to vary as a function of time ("time of use pricing"). When demand is high the retail price is high and vice versa. With time-of-use pricing, when peak demand coincides with hot sunny days, the cost of solar electricity is closer to the price of grid electricity, and grid parity will be reached earlier than if one single price were used for grid electricity.
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.
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 Feed-in Tariff (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.
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, 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 per Kilowatt hour (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 complex). For example, Greece, at the end of 2008, had 3GWp of permit requests unprocessed and halted new applications.http://www.helapco.gr/library/25_11_08/New-FIT-Greece_26Nov08.pdf
National incentives
Armenia Armenia is a country with enormous solar energy potential. Energy flow per square meter is about 1,720 kWh compared to the European average of 1,000 kWh. Accordingly, the Armenian government is providing various incentives to promote solar energy self-consumption practices. For example, residential consumers are exempt from regulations if they have an installed capacity of up to 150 kWh. Per amendments made in 2017, the limit for commercial consumers has been increased, and in the case of commercial consumers, capacities of up to 500 kWh are exempt from regulations. Additionally, solar panels, batteries, EV chargers, and e-vehicles are exempt from import taxes.
For 2018, the established Feed-in tariffs excluding VAT from solar plants was 42,845 AMD/kWh.
Armenia also provides guarantees for renewable energy consumption, and more precisely, it guarantees that all energy produced from solar plants will be purchased within 20 years.
Australia
Small-scale Renewable Energy Scheme (SRES) The SRES is a federal scheme and is designed to reduce greenhouse gas emissions and encourage the uptake of renewable energy technologies. Under the scheme, eligible systems can earn small-scale technology certificates (STCs) based on how much electricity they generate or displace. Each megawatt hour of renewable energy generated by the system is awarded one STC.
Large-scale Renewable Energy Target (LRET) The LRET is a federal scheme that encourages investment in the development of renewable energy power stations, like wind and solar farms, by providing a financial incentive for electricity generated from renewable sources creating a market for creating and selling large-scale generation certificates (LGC).
State based schemes Aside from the federal schemes each state of Australia also has its own rebates subsidies and incentives. These are usually more short lived and vary in nature.
Feed-in tariffs
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. Only a small proportion are Gross Feed-in tariffs (proposed NSW and ACT), most are on a net basis. In the Northern Territory at present only the Alice Springs Solar City is eligible for feed-in tariffs for solar PV.
Bulgaria
Situation as of April 1, 2010
<=5 kWp 792.89 Leva/MWh (about €0.405/kWh) >5 kWp 728.29 Leva/MWh (about €0.372/kWh)
Bulgarian regulator DKERdker.bg
Remuneration for 25-year contract, with possible next year changes set related to 2 components (electricity sales price previous year, RES component).
Canada
Overview of Federal and provincial incentives at Canadian Solar Industry Association (CanSIA).
Ontario
In 2006 the Ontario Power Authority introduced the Renewable Energy Standard Offer Program. This program was replaced with the 2009 Feed-In Tariff program for renewable energy (FIT). The FIT program is further divided into the MicroFIT program for projects less than 10 kW, designed to encourage individuals and households to generate renewable energy.
The program was launched in September 2009 and the tariffs were fixed then. The solar projects ≤10 kW received $0.802, however, as of 13 August 2010 ground mounted systems will receive a lower tariff than rooftop mounted systems.
Feed-In tariff rates for the Ontario Power Authority (OPA) FIT and MicroFIT Programs, for renewable generation capacity of 10MW or less, connected at 50 kV:
+Solar PhotovoltaicSitePower (kW)Rate($CDN per kWh)Ground Mounted Up to 10 $0.642Over 10$0.443Rooftop Up to 10 $0.802Over 10 and under 250 $0.713Over 250 and under 500 $0.635Over 500 $0.539
Wind, Hydro, Biomass: from $0.111 up to $0.195/kWh CDN
Tariffs vary based on fuel type and size of installation. The contract duration with the OPA is 20 years, with a constant remuneration for solar, though biomass, biogas, hydro, and wind receive a 20% of Consumer Price Index price adder. Additionally, biomass, biogas, hydro receive a 35% peak demand adder during peak demand periods of the day and -10% off peak. Finally, all but solar may also qualify for a community and aboriginal price adder. 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 intent of the Feed-In Tariff program is to provide an 11% return on investment.
In June 2013, Ontario Canceled Feed-in Tariffs for Large Projects.
Croatia As of March 2007
Systems <10 kWp: 3.40 HRK (€0.45 /kWh) Systems from 10 KWp up to 30 kWp: 3.00 HRK (€0.40 /kWh) Systems >30 kWp: 2.10 HRK (€0.28 /kWh)
Contract duration 12 years
Price calculated in Croatian Kuna, exchange rate used for conversion of above rates 1 EUR = 7.48 HRK.
Czech Republic