August 13th, 2020
The policy landscape for solar energy is complex with a broad range of policy instruments driving market growth. The rapid market growth of solar energy in Germany and Spain could be attributed to the feed-in-tariff systems that guarantee attractive returns on investment along with the regulatory requirements mandating 100% grid access and power purchase. On the other hand, federal and state incentives, along with regulatory mechanisms such as RPS, get credit for the rapid deployment of solar energy in the United States. In both markets, the policy landscape is in a transitional phase. In Germany, the FiT level is being reduced, whereas in the United States, upfront incentives are being shifted toward performance-based incentives. It is, however, uncertain if the transition will produce expected results. The decrease in the FiT, the primary basis for investors’ confidence, could drive investors away from solar energy markets.
The rapid growth of the grid-connected PV and CSP market is largely attributed to a policy suite that guarantees attractive returns on investment, along with regulatory requirements such as grid connectivity and power purchase commitments required to motivate investments. While FITs played an instrumental role in Germany and Italy, a mix of policy portfolios that includes federal tax credits, subsidies and rebates, RPS, net metering and renewable energy certificates (REC ) facilitated solar energy market growth in the United States. Similarly, New Jersey developed a policy mix that combined a broad range of federal and state incentives to drive rapid market growth: a policy portfolio consisting of RPS, federal tax credits, grants, drove the rapid growth of the PV market in New Jersey. In the Southwest United States, the combination of excellent solar resources, the 30% federal tax credit, and RPS policies has resulted in a rebirth of solar thermal electric generation. In two of the three states exploring solar thermal electric, the existence of a solar – or distributed generation-specific RPS tier has also played a role in increasing project development.
The capital subsidy was the predominant policy instrument early on in India, but a mix of policy instruments, such as, subsidies, fiscal incentives, preferential tariffs, market mechanisms and legislation, were encouraged later for the deployment of solar energy (MNRE, 2006). For instance, in 2004-05, the subsidy for the solar photovoltaic program varied between 50% and as high as 90% for the “special category states and islands.” Similarly, the subsidy for solar photovoltaic water pumping was Rs. 100/Wp and as much as Rs. 135/W in the special category states (Banerjee, 2005). The growing role of private finance has reduced the role of fiscal policy drivers in the overall financing mix for solar power, and capital subsidies have been ratcheted down substantially, except in exceptional cases such as “remote villages and hamlets.” India now relies on a mix of mechanisms including various tax and generation-based incentives, renewable purchase obligations, capital subsidies and accelerated depreciation. Yet, the accumulation of incentive programs and the failure to coordinate them is thought to hinder the development of renewable energy resources in India as it results in unnecessary delays and conflicts (ESMAP, 2011a).
In the Philippines, the portfolio of policy instruments includes dutyfree importation of equipment, tax credits on domestic capital equipment and services, special realty tax rates, income tax holidays, net operating
loss carry-over, accelerated depreciation and exemption from the universal charge and wheeling charges (WWF, 2008).