15 June 2008

► Alternative policy approaches for the commercialization of Solar PV.

The Solar Photovoltaic support policy framework in Australia and the Netherlands:
Two different short term objectives with similar long term goals

This paper represents an effort to monitor and compare the implemented policies of Australia and Netherlands with respect to the promotion of solar photovoltaic (PV) energy. The main criteria for choosing these two countries, and to perform an evaluation of their relevant policies side by side, are the following:
1) They both have a significant number of installed PV equipment of total capacity of 70.3 and 52.7 MW, holding the 5th and 6th position respectively in the total global PV capacity.
2) They both have similar installed capacity per capita ratios with an average of 3.3W/cap (with a deviation of 0.2 W/cap) and a relatively moderate population size of 20.6M and 16.6M, respectively.
3) The different characteristics in geography and economy reflect different goals for the implemented policies.
Table 1: Cumulative installed PV power: historical perspective.
Cumulative installed PV Power [MW]
Country199219931994199519961997199819992000200120022003200420052006
AUS7.38.910.712.715.718.722.525.329.233.639.145.652.360.670.3
NLD1.31.62.02.43.34.06.59.212.820.526.345.949.551.252.7
Total1101361641992443143965207299891,3341,8282,8584,1805,695

Australia: Australia is a country with very extensive geographic coverage for the population that inhabits it. The density of the population is only 2.7 residents per square kilometer, among the lowest in the world. This particular characteristic explains the main two issues of the current electricity situation in Australia. These involve the difficulty of building and maintaining an integrated electricity network, and secondly the use of diesel for electricity generation. Consequently the implemented policies in the county have as a focus to overcome these two difficulties. The main policy programs implemented by the federal government for the support of use of PVs are the Renewable Remote Power Generation Program (RRPGP) and the PV Rebate Program (PVRP).
RRGP provides financial support for the development of renewable power generation facilities in off-grid applications where power generation has been oil fueled thus far. The program was initiated in 2000 and PVs are included in the renewable power generation portfolio. The program provides up to 50% of the capital cost of the newly installed PVs. The government funds are allocated to the participating districts based on the decrease in local oil consumption from power generators for each year. Even though the program was started with the aim to decrease local oil consumption, revisions in 2004 and 2007 by the Australian government expanded the program’s goals to include the further displacement of any fossil fuel; it further extended the program by providing additional funds, totaling for the duration of the program around AUS$328 million. It also increased rebate maximums, and pushed back the deadline for government fund provision to 2012.
The RRGP is comprised of several subdivisions, which are implemented in the various Australian territories according to local needs for off-grid power generation. The sub-programs that deal with the use of PV include: the residential and medium scale sub-program (RM), the renewable energy water pumping sub-program (WP). The RM entails the installation and use of PVs by private residents, communities, not-for-profit, business, government organizations and by independent power producers who supply a third party. System requirements include a minimum renewable generation component of 450 W peak output. The program applies only to new PV installations, for which the rebate is equal to 50% of eligible capital costs, or AUS$8 per watt installed with a cap of AUS$8,000, whichever is greater. The WP centers on the use of renewable energy in water pumps, mainly for irrigation purposes. Previously, diesel fuel met the energy requirement for their operation. Such renewable energy sources include solar (via photovoltaic cells) and wind energy. The rebate is up to 40% of the capital cost of purchase and installation of the renewable energy component of eligible water pumps, minus AUS$1,000, and up to AUS$30,000.
The RRGP also has sub-programs specifically developed for particular geographic sub-divisions of Australia, in particular Western Australia, Tasmania, and Northern Territory. In those areas additional sub-programs related with the use of PVs, include: the rural renewable energy program, large individual projects off-grid, and industry-supported projects. The first one provides a 50% rebate of invested capital for the construction of grid-connected small and medium PV systems with a capacity ranging from 500 W to 2 MW. The large individual projects off-grid sub-program refers to projects with a rebate value greater than AUS$500,000; rebate programs for these are evaluated on an individual project-basis by the Australian government. In the latter case, funds are provided to support the use of renewable energy systems, training, equipment provision and testing, and standards development in off-grid and fringe of grid industrial sectors.
The Photovoltaic Rebate Program (PVRP) differs from the RRGP in that it applies exclusively to the rooftop installation of PV panels in residences, community buildings, and schools that are either located on the main electricity grid or very near to one. The rebate applies to a minimum system size of 450 watts; for new systems, it provides up to AUS$8,000 (or AUS$8/watt up to 1kW), and up to AUS$5,000(AUS$5/W up to 1kW) for extension of old systems. For schools and community use buildings it provides 50% of the system cost, up to 2kW.
These programs were developed under the fertile environment for renewable energy markets’ development, created by Australia’s Renewable Energy (Electricity) Act of 2000 also known as the Mandatory Renewable Energy Target (MRET). MRET sets the goals for the national energy strategy until 2020. These goals require the gradual introduction of 9,500 gigawatt hours (GWh) by 2010, from renewable energy sources. It also requires the maintenance of such levels until 2020. As part of MRET, wholesale electricity purchasers and retailers are required to obtain a set percentage of their electrical power from renewable sources, according to the annual phase increase. This program, also known as the Green Power Program, mandates that liable parties purchase and present Renewable Energy Certificates (each represents 1 MWh of electricity from a renewable energy generator). Non-compliance bears financial penalties of AUS$40/MWh.
Another initiative developed under the MRET includes the Solar Cities program (SCP). SCP was initiated in 2004, and was further expanded in 2007, to include a total of seven participating cities. This initiative works as a trial for the sustainable integration of new solar energy supply in an urban environment. The major priorities of this initiative include the merge of diversified energy technologies in modern cities, but also electricity load management models and cost reflective pricing of large-scale, grid-connected urban areas (feed-in tariffs).
On a state level, state governments have gone even further. The state government of New South Wales, driven by the national commitment to the Kyoto protocol, has introduced emission intensity limits on power consumed in NSW, and has set mandatory performance standards on new residential buildings. It is also considering the introduction of feed-in tariffs for the inter-connected PV systems, after the observation of the success of the same concept in Germany and Spain. An example of one of these programs includes BASIX, whose goal is to improve the environmental performance and greenhouse gas emissions impact of new homes built in New South Wales. It is an online tool that is meant to be used early in a home’s design and building process, allowing for the building of a more energy efficient and environmentally friendly home.
Table 2: Cumulative installed PV power as of the end of 2006.

Cumulative installed PV Power [MW]
CountryCumulative off-grid PV capacityCumulative grid-connected PV capacityTotal installed PV power
Total installed per capita
PV power installed in 2006Grid-connected PV power installed in 2006
[kW][kW][kW][W/Capita][kW][kW]
DomesticNon-domesticDistributedCentralized----
AUS23,88336,6539,00576070,3013.59,7212,145
NLD5,71343,6733,31952,7053.21,5211,243

Estimated total
226,751347,8564,773,2714,773,2715,691,656-1,514,6471,448,050

The Netherlands: The Netherlands as a country represents a totally different situation. It has much lower average solar exposure and has all the necessary integrated transmission and distribution electricity infrastructure already in place. Thus, the Dutch government’s goals with regards to energy could be assessed as being totally different from Australia’s. One of its goals is to comply with the restrictions imposed by the Kyoto Protocol regarding greenhouse gas emissions, by diversifying its electricity resources and developing a PV generation infrastructure. The Netherlands remains a net electricity importer, with annual imports of 18 billion kWh for 2005. This is in contrast to Australia, whose distant geographic position has led to their electricity markets being in an autarchy regime. The Netherlands’ goals also include decreasing its dependency on traditional electricity imports, thus further reinforcing its energy security. Finally, the development of its PV construction industry remains a priority as well – in order to increase its share in this constantly growing market.
This goal assessment becomes apparent by the way the national government has allocated its funding. For the year of 2006, only 6% of the total national spending for PV went to financial incentives, while the other 94% went to research and development. The main financial incentives include tax rebates, feed-in regulations, and green certificates, while local authorities provide an additional estimated budget of €1-3 million for investment subsidies.
The liberalization of the electricity market and the parallel introduction of green certificates for the promotion of electricity from renewable sources was introduced in 2001, and provided the basis for the further development of this particular market. The next step was a program introduced in July 2003 and which continues to be enforced today, called the “Environmental Quality of Electricity Production” (MEP). This program provides production subsidies, in the form of grants, to domestic producers who are interconnected with the national grid. These subsidies for solar electricity production were priced at €0.097/kWh, through long-term contracts.
In addition, electricity production subsidies are offered through the process of net metering. It forces utility companies to purchase the excess production of the interconnected PV units at the consumer retail price of €0.20/kWh with a cap of 3,000 kWh per year. Through the concept of net metering, each individual producer that returns excess electricity to the grid is able to acquire from this process an amount of up to 600 euros annually. The cost of this program and of the MEP is transferred through the transmission system operator to the end user by an annual levy to all connections. .
The last financial incentive available is the Energy Investment Deduction (EIA). It represents a tax deduction incentive available to the commercial sector for investment in PV equipment. It amounts to a 44% deduction of the total annual production and purchase costs of PV-related equipment, over the annual profit tax of the company. The program covers the costs of obtaining energy advice as well as consultant services, as long as that advice results in an investment in an EIA asset, such as PV. The annual maximum amount per year is capped at €111 million.
As stated earlier, the vast majority of funding in the Netherlands for PV has gone towards research and development. There is a total set of policies already in place targeting this particular sector which are aimed at cost reduction for long-term implementation. A total of €9.4 million was awarded to PV R&D and technology transfer activities in 2006. This budget was mainly provided for R&D and technology transfer. from other countries with expertise in this sector. There was a very small proportion of this budget invested for field trials in the country, and did not provide support for PV installations in developing countries, as any such project would be financed through the Clean Development Mechanism. The Sustainable Electricity Production Platform of 2006 sets the framework for transition to clean energy. The main goal is to achieve a carbon emissions-free electrical supply by 2050 through the use of renewable energy: including wind, solar, and biomass. This is the general policy framework under which extensive R&D programs are implemented and developed. Some of these R&D programs are aimed at developing more efficient PV technologies such as the Ribbon Growth on Substrate (RGS), as well as the production of photovoltaic cells.
Table 3: Public budget for R&D, field trials and market stimulation in 2006.

Annual Budget in million EUR and million USD

Country

R&D

Demonstration and field trials

Market stimulation

Total

EUR

USD

EUR

USD

EUR

USD

EUR

USD

AUS

4.2

5.2

0.4

0.5

14.2

17.8

18.8

23.5

NLD

9.4

11.7

-

-

3

3.8

12.4

15.5

The two approaches compared: Based on the experiences previously analyzed, there is a significant difference between the development approaches of PV technologies in the two countries. Australia’s focus on PV development has been, so far, mostly on an off-grid basis, while the Netherlands focuses on projects within the electricity grid. Thus, there is a significant difference in the status of interconnection standards of the PV projects to the grid, between the two countries; in the Netherlands, they are strong as they have to be able to support the MEP and net metering financial incentives. In Australia though, this might pose a significant obstacle towards its expansion of programs with on-grid applications, due to the country’s recent compliance with the Kyoto protocol (2007) and the collateral developing projects such as the Solar Cities Program.
In the Netherlands, on the other hand, despite the substantial effort towards R&D, the long term implemented financial policies have been inadequate to sustain the development of small and medium-scale domestic projects. This is evidenced by the fact that even if the annual funds (through the tax rebate program) were capped at 111 million Euros, only 3 million Euros went towards PV market stimulation in 2006. The EIA program provided the funds for a diverse portfolio of renewable energy development. However, due to the lack of strong and efficient incentives for the stimulation of the PV market, only a small proportion of these additional funds was finally used for this particular market, while the largest proportion of the funds were invested in wind projects and biomass. As a result, the net growth of PV in the Dutch market dropped significantly in 2006, with a significant decrease of 20% in the market of distributed grid connected systems in particular. More specifically in this year only 1.5 MW new PV’s were installed in the country while for 2005 the number was up to 1.66MW. Although, this was partially compensated by some new centralized grid connected systems of total capacity of 0.160MW which were mainly results of R&D and field test projects.
The financial incentive of net-metering for the interconnected PVs is considered inefficient for the stimulation of the PV market compares to feed-in tariffs. This is because net-metering is a “marginal incentive” which offers a much lower return of the initial capital investment compared with the feed-in tariff at which all electricity production from the installed PVs, is directly sold to the utilities in a higher than the retail price (in Germany for instance the 2007 average retail price was €0.19/kWh while the feed in tariff was €0.492/kWh for the same year, down from €0.518/kWh for the previous one). The cost of a feed-in tariff program in the short run might be higher but offers to individuals a much stronger incentive in order to invest in the technology as they can expect when their investment will pay off its initial cost. The excessive cost of such a program can also be distributed to the consuming base through the transmission system operator and the distribution companies. In addition, the rates of the program are reevaluated periodically and readjusted to lower levels as the scaling of the market drives down the initial costs. This process would eventually lead to a net metering regime but only after the period for which the program was initially designed. At this point the price of the electricity produced would be competitive with the retail price. The success of this incentive is also indicated by the prime examples of Germany, which in 2005 surpassed Japan’s PV capacity (Japan still uses net-metering along with investment subsidies as the Netherlands does) and is presently the market leader in PV’s, and Spain that both take benefit of this particular policy and this should also be the approach used for Australia’s urban PV development.
In 2005 and 2006, there were shortages in the supply of silicon for the construction of PV cells. During 2006 the countries with the most installed PV power were also the leaders in PV panel production: Germany (with 953 megawatts) and Japan (with 286 megawatts). Third was the US with 145 megawatts, and fourth was Spain which stimulates its market development only via feed-in tariffs. These were the countries with most technologic capabilities to produce PV cells and not necessarily the countries with the most inflated subsidies, but the ones with the most well implemented financial incentives and strongest dynamic in the market.
In conclusion, both the Netherlands and Australia should keep supporting their local PV industries as the Netherlands primarily does. This is because a strong local supply can support the country’s PV market development, decrease PV equipment cost, avoid shortages that have presented in the past and provide a potential profit from PV exports to a constantly increasing global market, as the developing world is also adapting the technology in its quest for sustainable development.
Please feel free to contact me for any comments or further discussion.
- Savvas E. Politis, Int'l Energy Management & Policy (IEMP), Columbia University, snp2107@columbia.edu

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