Solar Feed-in Tariffs Go Global

PAVEL MOLCHANOV, Raymond James (03/18/2010)
"The feed-in tariff (FIT) has been definitively proven to be the most successful incentive model for solar power. While Germany is the textbook case study of how a FIT can create a thriving photovoltaic (PV) market, more recent examples—such as Italy and Korea—confirm that similar success can be replicated elsewhere. Of course, like any government policy, FITs can be too much of a good thing, with overly generous incentives ultimately being counterproductive for an industry that must continue to move down the cost curve in order to reach grid parity. In the wake of Spain's 2008 overbuilding phase, governments are increasingly proactive in cutting FIT rates against the backdrop of falling PV module prices to prevent such a scenario from recurring. The current situation in Germany—aggressive demand pull-in, followed by the inevitable slowdown later in 2010—shows the challenges of crafting a sustainable FIT policy. Despite the inherent risks, the obvious success of FITs in Europe has led them to spread all over the globe, stimulating PV demand in young PV markets, such as China and Canada. A national U.S. FIT would be an enormously bullish catalyst for PV demand (and thus solar stocks), though we readily admit that such a scenario is a pipe dream for the foreseeable future. In the long run, of course, FITs may become a moot point as markets, one by one, approach grid parity, but for the time being FITs are a profoundly important, albeit sometimes volatile, driver of PV demand."

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