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 elelectricity 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.