Optimal feed-in tariffs and subsidies for residential photovoltaic systems

A feed-in tariff system and a subsidy are often used to make households install photovoltaic (PV) systems for solar power generation. They both influence the economics of a household in deciding whether to install or not. The purpose of this study is to obtain information on how a PV-power price and a subsidy should be set to promote adoption of PV systems effectively and efficiently. The model developed by Yamamoto (2012) is extended to introduce a subsidy. The findings of this study are, first, that when a diffusion process through a social network is not considered, a PV-power price should be set at environmental benefits a unit of PV-power realizes plus a unit cost of conventional generation with a subsidy being used to control the number of households that install PV systems if a government is aiming at maximizing social welfare; second, that when the diffusion process is not considered, only a PV-power price should be introduced if a government is aiming at maximizing the environmental benefit; and third, that when the diffusion process through a social network is considered, only a subsidy should be introduced. keywords: Feed-in tariff, Subsidy, Residential photovoltaic system, Diffusion, Network