As illustrated earlier, by and large solar energy technologies are not yet cost-competitive with conventional energy commodities at either the wholesale or retail levels. Therefore, any significant deployment of solar energy under current technological and energy price conditions will not occur without major policy incentives. A large number of governments have decided to increase solar energy development, using a range of fis­cal, regulatory, market and other instruments. In fact, the strong growth in solar energy markets, notably those for grid-connected solar PV and solar thermal water heating, has been driven by the sustained implementation of policy instruments in Europe, the United States and some developing countries to induce or require increased use of solar power.

This section briefly presents key characteristics of policy instruments that support solar energy for both electric and direct heating applications. A large number of policy instruments have been implemented to increase power supplies from solar PV and CSP. The key instruments we high­light here include feed-in-tariffs, investment tax credits, direct subsidies, favorable financing, mandatory access and purchase, renewable energy portfolio standards and public investment. Three rationales are commonly offered for utilizing these policies. One is to encourage the use of low-car­bon technology in the absence of a more comprehensive policy for green­house gas mitigation, like a carbon tax. The disadvantage of this approach for greenhouse gas mitigation is that it does not create incentives for cost – effective mitigation choices. The second rationale is that expanded in­vestments will ultimately help drive down the costs of those technologies through economies of scale and learning-by-doing. There is clear evidence that scaling-up has driven down unit costs for PV, though not yet to the point that it is cost-effective with conventional alternatives in most cases. CSP is still relatively a pioneer technology with only a few medium-scale investments and no larger-scale investments, though some are planned. It remains to be seen how scale economies and learning-by-doing will lower its costs. The third and most unambiguous rationale is that subsidization of small-scale, off-grid PV (and other renewable energy sources) to bring electricity to remote and poor areas lacking access is a powerful force for stimulating economic development.