Although solar costs have been dropping in recent years, solar power is still more expensive than conventional electricity generation and other renewable energy options. In most applications, solar power also still needs continuing government policy support. However, the need to achieve multiple objectives and ensure sufficient political support makes it difficult for policymakers to design an optimal solar power policy. The dynamic and uncertain nature of the solar industry, combined with the constraints imposed by broader economic, political, and social conditions, further complicates the task of policymaking.
In this paper, the authors present a framework for critically analyzing the objectives behind different countries’ policies, understanding how factors such as macroeconomic conditions and development paradigms affect the policy outcomes, and, finally, how these outcomes affect the overall reduction of solar energy costs. While the extent of cost reductions that can be achieved through economies of scale remains to be seen, it is essential for governments to provide adequate support for “leapfrog” research, development, and deployment measures and to leverage real comparative advantages across countries for effective cost reduction. In order to realize the full potential of solar policies, regulators need to balance national objectives and payment capacity with the global objective of solar power cost reduction.