Sensitivity to policy costs is more significant in developing country markets such as India, China, Brazil, Philippines and Bangladesh than in more developed economies. Thus, a common approach toward renewable energy technologies, seen in developing countries, is to “rationalize development and deployment strategy” (MNRE 2006) of renewable energy technologies. For instance, India planned in its eleventh Five-Year plan (2007-2012) to install 15,000 MW of grid-connected renewable energy and it was widely believed that this market expansion would be driven by wind, micro-hydro and biomass, as the plan recognized that solar PV would be an option only if the prices come down to levels comparable to micro-hydro.
More recently, the National Solar Mission promoting solar power in India has been launched. The first phase (2009-2013) targets increases in the utility grid power from solar sources, including CSP, by over a 1 GW (ESMAP, 2011a). By 2022, 20 GW of solar capacity is to be added in India. The approach to the renewable energy mix in China, Philippines and Bangladesh represents similar priorities of rationalizing the policy costs. In Brazil, as in other developing countries, the minimal policy cost is ensured via technology-specific and reserve energy auctions (ESMAP, 2011b) as the cheapest renewable energy projects are implemented first.
Solar PV is recognized as serving a niche market that is very important in developing countries—electrification of rural and peri-urban areas that do not yet have access to the electri grid. There are vigorous efforts to expand the market for Solar Home Systems (SHS) as a means toward rural electrification. However, rural and peri-urban areas are characterized by low income households that may not be able to afford solar energy technologies unless they are substantially subsidized. Until now, the approach is to provide subsidies either via government funds or through international donors. However, a subsidy is a short-term support, not a long-term solution.
CSP and solar water heating are comparatively cheaper than solar PVs. These could be cost competitive with conventional fuels if existing subsidies to the latter are reduced or removed. However, fossil fuel subsidies are politically sensitive in many countries and their removal might take time. Thus far, CSP has not found much success in a developing country context. Unlike Solar PV, CSP is limited to utility scale applications and as such is often out of consideration in the traditional utility generation market due to current prices. Thus, developing country governments have adopted a cautious policy approach to this market, focusing more on pilot scale projects, as with grid-connected solar PV. Through its National Solar Mission, India is the first developing country to take a step towards the installation of CSP capacity.
Unlike in electric applications, solar heating applications enjoy limited policy support as instruments like FITs and RPS are not applicable for heating applications. Moreover, it is more difficult to measure and verify solar water heating performance, and so performance-based incentives are harder to enact.