Financial incentives

We have already noted that PV, an exciting new technology with major environmental benefits, both justifies and deserves the support of govern­ments wishing to accelerate market growth and counter the effects of global warming. Japan showed the way in 1994 with a 70 000 solar roofs program. Germany, after succeeding with its own 100 000 roofs program, went from strength to strength after 2004, thanks to improvements in its groundbreak­ing renewable energy legislation. Spanish government legislation led to an extraordinary burst of activity in 2008 when 2.7GWp of PV capacity was installed in a single year (you may like to refer back to Section 4.5 on large PV power plants). The USA, held back during the years of the Bush admin­istration, is now surging ahead. In spite of a certain amount of stop-go in all these programs, and difficulties due to the global economic recession that began in 2008, many other governments around the world have now joined the pioneers by offering substantial financial incentives to install PV systems.

Figure 6.5 Rooftop arrays on the Reichstag building in Berlin exemplify the German government’s support for PV (EPIA/Engotec).

Подпись: Figure 6.5 Rooftop arrays on the Reichstag building in Berlin exemplify the German government's support for PV (EPIA/Engotec).
Of the various ways in which governments have sought to provide financial incentives for the installation of grid-connected PV systems, two key ones are particularly relevant to our discussion here:

■ capital grants to offset the initial cost of the system.

■ special tariffs for the electricity generated, which is either used on site or fed into the grid.

Referring back to Figure 6.2, the capital grant route is designed to reduce a project’s initial negative cash flow, denoted by the letter A in the figure. Such grants, often covering 50% or more of the purchase price, are funded out of general taxation and are therefore paid for by all taxpayers. One disadvantage is that the money is paid up front, generally with no redress if the system is poorly maintained and fails to produce the expected amount of electricity. Another is that governments normally ‘cap’ the total amount of money available which can lead to an initial rush of grant applications that rapidly exhausts the fund – a perfect recipe for stop-go market devel­opment unless the scheme is constantly reviewed and reactivated.

The second approach, which offers attractive subsidies for electricity gener­ated, increases the amount of income received over the life of the system (shown blue in Figure 6.2). It therefore encourages the purchase of high – quality systems that are carefully installed and maintained. Often taking the form of feed-in tariffs (FITs), the subsidies are financed by requiring utili­ties to buy renewable electricity at well above normal market price. The cost is spread over all customers who must pay a small annual percentage increase in their electricity bills. From a government viewpoint FITs are generally ‘ revenue – neutral ’ . Their major advantage is the guaranteed income payments offered over timescales of 20 or 25 years, reducing uncertainty and increasing investor confidence.

PV systems that are designed to feed electricity into the grid must obviously incorporate appropriate metering. A one-way electricity meter to measure incoming power is no longer sufficient. One possibility is to replace it with a two-way meter that records the net flow to and from the grid, referred to as net metering. In effect the PV generator is paid the same rate per kWh for export and import, giving full value for all electricity produced. However FIT ’s and other schemes that pay differential rates for local generation (whether used on site or exported) require the PV output to be separately metered. The introduction of electronic smart metering in many countries will give greater flexibility in tariff design, allowing PV electricity to be priced according to the time of day it is generated and the requirements of the grid.

In recent years the FIT approach has proved increasingly popular, not least because of its remarkable success in Germany. A renewable energy law passed in 2000 introduced a FIT that proved extremely effective at stimulat­

ing a range of renewable energies. The PV tariffs were tweaked in 2004 to compensate for the termination of the German 100000 roofs program, providing payback times of around 8-10 years. This resulted in a veritable boom in PV installations. Huge numbers of PV arrays were put on domestic and commercial buildings, farmers placed PV on barns and in fields, and many large PV power plants were commissioned. By 2005 total installed capacity in Germany exceeded 1GWp and by 2008 it had reached 6GWp.

Of course, a generous FIT can become unsustainable if continued too long, so in many cases tariffs for new installations are lowered, or degressed, by a certain percentage each year to take account of PV’s expected ‘learning curve’. Providing they are well designed, such schemes avoid the need for caps on total capacity, and encourage suppliers to reduce costs and deliver more efficient systems. In 2008/09 there was much political debate in Germany about FIT tariff levels that had been standing at between 0.33 and 0.43 € /kWh according to the type and size of installation, and about pos­sible caps. In short, the situation had become somewhat overheated and needed correction.

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A Spanish FIT, first introduced in 1997, was upgraded in 2004, starting Spain on its exciting journey into the gigawatt era. A few years later the

Spanish government decided to introduce annual caps and slant the tariffs towards BIPV rather than large power plants, with ongoing reviews, to dampen a market that had surged beyond expectation.

More than 60 other countries have now entered the FIT arena and many are no doubt learning from the operational experiences of the pioneers. And in spite of the negative effects of the global economic recession that started in 2008, most commentators believe that PV and other renewable energy technologies will ride the storm relatively unscathed and continue to attract the support of governments increasingly focused on the dangers of global warming.

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