How Do Different Countries Incentive Solar Power?

13th Aug 18

Cameron Quin

Written by Cameron Quin

When a country wants to increase the solar generation capacity connected to its power grid, a very effective strategy is creating incentive programs for homes and businesses. In simple terms, incentive programs make solar power a more attractive investment, normally accomplished by reducing equipment costs or by enhancing the benefits of solar generation.

Some incentive programs target energy consumers who deploy solar power systems for their own use, while others are for investors developing solar farms to sell electricity. In both cases, the goal is to have more solar panels operating in a country or region.

The incentive programs available for solar power change by country, and this article will describe some of the most common and successful approaches throughout the world. Keep in mind that only some of the incentives described here are found in Australia, but solar power is already a great investment by itself.

Incentive programs are normally created with a deadline or with a gradually decreasing benefit, to benefit solar power even more when it is still a small industry. As a result, homeowners and businesses can typically get more benefits by acting quickly. Also note that incentive programs normally have a list of requirements for a solar system to be eligible – working with qualified providers is highly recommended to make sure you meet all applicable requirements.

Tax Incentives: Credits and Exemptions

In the USA, tax incentives have been the main approach for driving the growth of solar power. Based on how they work, these incentives can be classified into tax credits and tax exemptions.

  • A tax exemption is a type of incentive where solar power is not subject to a tax that applies normally. For example, a government may remove or reduce the sales tax for photovoltaic panels and other associated components, or buildings may be spared from an increase in property taxes if their value is raised by a solar array.
  • A tax credit is a deduction that can be claimed from your normal tax burden when you deploy a solar power system. A great example is the USA Energy Investment Tax Credit, which allows 30% of the value of a solar system to be deducted from federal taxes, applying for all photovoltaic systems deployed before 2020. Some states in the USA have added local tax credits for solar power, on top of the federal incentive.

Both types of tax incentives reduce the cost of photovoltaic systems. The main difference is that a tax exemption provides a direct cost reduction, while a tax credit saves funds you would have been forced to pay otherwise.

Although Australia lacks these benefits, importing solar panels is relatively simple and the corresponding tax burden is low. This has allowed Australia to reach some of the lowest solar power costs in the world, with a payback period that can be less than three years.

Performance-Based Incentives

As implied by their name, performance-based incentives reward solar system owners based on the electricity production accumulated. Two approaches are the most common: rewarding you directly for electricity production, or allowing you to accumulate credits based on generation.

  • Some governments have introduced generation incentives, where you get a bonus payment based on how many kilowatt-hours of clean energy have been produced by your solar power system. With this type of incentive, you savings per kilowatt-hour are actually higher than the retail price of electricity – someone with a tariff of 25 cents/kWh and getting a bonus of 5 cents/kWh actually saves 30 cents/kWh with solar power.
  • Alternatively, you may be awarded credits based on generation. Although the name of credits can change by country or by program, they are commonly awarded at a rate of one credit for every 1,000 kWh. Australia has Small-scale Technology Certificates (STC) for solar systems up to 100 kW, and Large-Scale Generation Certificates (LGC) for installations exceeding that capacity.

Performance-based incentive programs establish metering requirements, to ensure your rewards are calculated based on reliable data. Paperwork requirements are also common; large companies can normally handle them directly, while homeowners and small businesses are normally better off delegating this task to a third party.

Solar Power Rebates

Solar power rebates are cash payments that reduce the upfront cost of going solar. These incentives are highly beneficial for energy consumers with limited access to investment capital, effectively making solar systems cheaper. In rebate programs, a common approach is to calculate the incentive per kilowatt of installed capacity, but this does not apply always.

  • For example, in Australia you have the option of converting STC payments into an upfront rebate, which is calculated based on your solar system’s expected generation by the year 2030.
  • The number of credits for a given solar capacity changes based on the project location. As of mid-2018, you can expect a cost reduction of around $650 per kilowatt if you take this option.

Net Metering and Feed-in Tariffs

When governments implement net metering, every kilowatt-hour exported to the power network is subtracted from your monthly consumption, and you save the full retail price of electricity. Note that the specific rules for net metering may change by location:

  • Some net metering programs include a payment for surplus production.
  • Others programs only let you reduce the power bill to zero, but there is no payment.
  • In cases where no payment for surplus production is provided, credit rollover to subsequent months is normally allowed.

A feed-in tariff applies when electricity exports to the power network have a rate different from the retail price of electricity. Note that this may work in your favor or against you, based on the specific value of the feed-in tariff:

  • When governments want to boost solar power, they may introduce a feed-in tariff that is higher than the retail price of electricity. In this case, it makes sense to export your full production to the grid.
  • Feed-in tariffs are normally reduced as the installed solar capacity grows, and this happened in Australia. Feed-in tariffs as high as 60 cents/kWh were available around 2010, but they have now been reduced to just a fraction of the normal kWh price.

Note than net metering and feed-in tariffs may be combined. For example, there are places in the USA where you get full credit for energy exports below your consumption, but only get a reduced feed-in tariff for surplus generation.

Low-Interest Financing

Some governments create special funds with the sole purpose of financing solar power projects, and these normally come with low interest rates and favorable payment terms that are not available from local banks.

When a solar power system is purchased with a low-interest loan, it is often possible to cover the loan completely with energy savings alone, and the net cost of the solar array becomes zero.

Sunshine: A Natural Incentive in Australia

The available sunshine in a country cannot be considered a solar incentive, since local authorities do not control it. However, you get a higher return on investment from solar arrays in sunny locations, since each panel has the change to produce more kilowatt-hours over its service life. Australia is characterised by abundant sunshine, and the best locations get more than than 6 kWh per square metre per day.

The STC rebate makes solar power more affordable, abundant sunshine makes solar arrays productive, and there are significant power bill savings to achieve due to the high price of electricity in Australia. Solar power systems are among the best upgrades available for residential and commercial properties.

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