Designing Solar Subsidies to Be More Targeted and Market-Oriented

Fixed feed-in tariffs were central to the success of photovoltaics in Germany and played a key role in transforming what was once an expensive niche technology into a widely available form of electricity generation. Today, however, a different issue is of interest: Is the revenue generated by feeding electricity into the grid still an incentive for investments that would otherwise not have been made – or is it increasingly subsidising PV systems that would have been installed anyway? In a recent assessment, Professor Sebastian Rausch, head of the ZEW Research Unit “Environmental and Climate Economics”, therefore advocates, in principle, a gradual phase-out of fixed feed-in tariffs for PV installations.

“A subsidy that made sense for the introduction of a new technology need not be continued indefinitely once the technology is mature and widely competitive,” says Rausch. He adds that also from a climate policy perspective, a general subsidy for solar power is harder to justify today, as electricity generation is already subject to the European Emissions Trading Scheme. Nevertheless, what Germany needs is not less climate policy, but rather a clearer division of labour, according to Rausch: Emissions trading puts a price on CO₂, competitive procedures ensure the politically desired volume of renewable energies where necessary, and market prices regulate feeding-in and storage. “A successful support scheme is also characterised by its ability to scale back once its original purpose has been achieved.”