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    Wednesday, September 29, 2010


    Photovoltaic Observatory – Policy Recommendations
    1 September 2010 (European Photovoltaic Industry Association)

    Observing PV policies in Europe
    Climate Change and the perspective of fossil fuel scarcity have strengthened the need for strongly promoting renewable energies. The deployment of solar photovoltaic electricity (PV) is crucial to help the EU meet its commitment to fight Climate Change and ensure security of supply, reducing Europe’s dependency on energy imports. To help tackle these important issues, the European Photovoltaic Industry Association (EPIA) advocates sustainable policies in order to keep the PV industry and market on a sustainable yet accelerated growth path.

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    In the context of the fast evolution of the European PV market over recent years, the need for a permanent monitoring of market dynamics has led to the creation of the Photovoltaic Observatory. Based on the analysis of existing policies in several key countries, Photovoltaic Observatory identifies recommended conditions for market development and best practices for the sustainable development of PV. The Photovoltaic Observatory also focuses on relevant regulatory issues: financial incentives, administrative barriers and grid connection procedures.

    The methodology of the PV Observatory consists of a systematic study of regulatory frameworks in European countries and their impact on market development.

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    Administrative barriers analysis refers partly to the PV LEGAL project ( while financial schemes are analysed using, among other indicators, the Internal Rate of Return (IRR) methodology. The price evolution is also assessed in the report.

    This complete analysis of the market conditions is realised, according to three main areas:

    • Financial competitiveness of PV: analysis of the financial support schemes and their sustainability

    • Easiness of the administrative process to install a PV system: analysis of the administrative framework

    • Easiness to connect the PV system to the grid: analysis of the grid connection process More detailed information and analysis can be derived within the Photovoltaic Observatory dashboard per country. Updates are conducted on a regular basis to ensure the utmost reliability of the findings and recommendations.

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    1 Implementing sustainable support mechanisms

    The optimal design of support schemes is the key market driver for sustainable development.

    Key Recommendation 1: Use Feed-in Tariffs
    Solar electricity is bought by utilities for each kWh generated by PV systems. This scheme is called Feed-in Tariff (FiT). This uses money coming from the electricity bill of all electricity consumers, without any impact on government expenses. For many years, FiTs have proven their ability to develop the market world-wide, ensuring long-term predictability of investments. Tariffs must be guaranteed for at least 15 or 20 years, without any possibility of retroactively reducing the amounts already granted.

    Key Recommendation 2: Assess the PV investment profitability on a regular basis and adapt FiT levels accordingly Sustainable market growth allows local industry players to develop and creates added value for the whole community. To ensure sustainable development, profitability must be closely managed and maintained on a par with other investments with equivalent risk levels. The figure to the right illustrates market developments under different support strategies. The green line represents a sustainable market growth. The red line shows a rapid and uncontrolled market peak, followed by a collapse due to sudden policy adjustment, while the blue line illustrates a stagnating market due to an incentive deemed insufficient.

    Assessing the profitability through IRR calculations
    All support scheme components (including FiT, tax rebates and investment subsidies) must be taken into account when calculating the Internal Rate of Return (IRR) of a PV investment. Its sustainability must be assessed considering all local factors that impact the relative profitability of a PV investment. Table 1 presents an estimate of average sustainable IRR levels in a standard European country.

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    Key Recommendation 3: Control the market with the upgraded corridor concept
    An uncontrolled market evolution tends to create “stop-and-go” policies that lower stakeholders’ confidence in PV. In that respect, it becomes necessary to foresee market condition changes and adapt FiT in order to ensure a sustainable growth path. The market corridor regulates the FiT based on market development over the previous period, thus allowing FiTs to be adapted so as to maintain growth within predefined boundaries. The FiT level is increased or decreased on a regular basis in relation to the cumulated market level over a period passing below or above a set of predefined thresholds (quarterly or bi-annually updates). In such a scenario, the changes to FiT must be well adapted to generate market response. The periodicity of review should be adjusted to follow closely the evolution of market prices while remaining compatible with investment cycles.

    Key Recommendation 4: Refine FiT policies to control additional parameters
    With the growing penetration of PV in many countries, support policies can be fine-tuned to control additional parameters and promote specific technologies. Direct consumption premiums, incentives for Building Integrated PV (BIPV), regional FiT variations, orientation premiums (East or West-oriented PV systems) and storage premiums are all examples of possible additional provisions.

    Key Recommendation 5: Draw a national roadmap to grid parity
    With the ongoing decrease in installed PV system costs and the increase in conventional electricity prices, the use of financial incentives will progressively be phased out, as competitiveness is reached. A realistic roadmap to grid parity (when photovoltaic generation costs are in competition with retail electricity prices) must be defined for every country in order to prepare the transition to full PV competitiveness.

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    2 Streamlining administrative procedures

    Although many countries have implemented support policies favourable to PV, when it comes to realising PV projects, bureaucratic issues and highly complex procedures and requirements (such as notification, registration or permitting) tend to significantly hold back installation processes. As a result, the cost of projects is kept artificially high, hampering PV market development or requiring unnecessarily high levels of FiT to compensate.

    In order to assess the situation in a specific country and facilitate comparisons with identified best practices, EPIA, as partner of the PV LEGAL project, has participated to the collection of information on administrative frameworks by National PV associations, and system developers.

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    Key Recommendation 1: Assess the administrative process
    In order to identify the major obstacles to success in the legal-administrative process, a series of key characteristics need
    to be thoroughly assessed:

    • Transparency: the process must be clear and understandable; the information necessary to complete each step must be available, complete and exhaustive

    • Linearity: when multiple institutions must be contacted, it is essential that each institution’s approval does not depend on the decision of the following one

    • Simplicity: the number of institutions required in the process must be justifiable and reduced to a minimum; redundancies must be avoided

    • Proportionality: the procedure must be proportionate, and suited to the specificities of each market segment

    • Cost effectiveness: the total cost of the administrative process must not represent a consistent share of the entire cost of the project

    • Reasonable duration: the time necessary to complete the whole process must not exceed a few weeks, particularly in the case of small and medium rooftop installations

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    In this respect, the PV LEGAL database represents an important source of information on the legal-administrative procedures required in 12 European countries. The database illustrates the administrative procedures and also quantifies the impact of administrative barriers in terms of time and cost. For more information:

    Key Recommendation 2: Establish a “one stop-shop” process
    A long administrative delay, compiled with the need to contact multiple agencies or government bodies, increases the lead time as well as the global cost of the project. The implementation of a simplified process is required, with one single step to be completed by the project developer. All authorisations, certifications and licensing applications must be assessed anddelivered through this “one stop-shop” concept.

    Key Recommendation 3: Reduce administrative lead times to a few weeks
    The reduction of the lead times must be a priority, especially for small-scale systems. Any delay in the authorisation process results in a loss of profitability for the investor, reduces return and therefore the attractiveness of the project. In the absence of any form of action from the body responsible for a given installation project, within a reasonable time limit to be established, approval should be automatically given for small systems.

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    Key Recommendation 4: Accompany the administrative simplification by an FiT adjustment Once the administrative process has been simplified, FiT should be adapted to take into account the cost reduction related to such a simplification. If this is not done, the overall profitability of PV projects could grow above sustainable levels.

    3 Guaranteeing efficient grid connection processes

    The grid connection process is often the most severe roadblock in completing a PV project, able to thus delay the project and dramatically increase its overall cost. Moreover the confidence of the investor lies in the guarantee that the electricity produced will be sold and transported; The PV Observatory provides an analysis of grid access, transmission and distribution of the electricity produced as well as some legal constraints related to the connection.

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    Key Recommendation 1: Assess the grid connection process
    In order to identify the major points of blockage in the grid connection process, the following elements need to be analysed:

    • Transparency: transparency of the connection process is essential for developers to ensure they will be able to connect to the grid at an already known connection point and at a clear and predictable cost (connection fees)

    • Information: comprehensive and necessary information must be available for new connection requests

    • Appropriateness: the installation of small decentralised systems should simply require a notification to the Distribution System Operator (DSO)

    • Lead time: Reasonable time to connection must be guaranteed and respected by either the DSO or the Transport System Operator (TSO)

    • Cost sharing: Connection costs must be properly shared between the PV system operator and the DSO/TSO. This can be combined with network usage fees in order to provide both parties with incentives to make an efficient use of the electrical grid

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    Key Recommendation 2: Reduce grid connection lead times to a few weeks
    The reduction of lead times must become a priority, especially for small-scale systems. Any delay in the authorisation process results in a loss of profitability for the investor, reduces return and therefore the attractiveness of the project attractiveness. Electricians preferably accredited must be able to connect small-scale systems to the grid with only a notification to the Distribution System Operator (DSO).

    Key Recommendation 3: Guarantee distribution and transmission of PV electricity
    Once the connection permit has been granted, the transport and the distribution of the electricity produced by PV systems must remain guaranteed during the entire lifetime of the installation.

    Key Recommendation 4: Ensure priority access to the grid
    The obligation for utilities to buy PV electricity at a predefined price (FiT) must be guaranteed. This must remain valid until the end of the grant period. After this period, the market price must apply automatically.

    Key Recommendation 5: Deliver grid connection permits to reliable project developers Policy announcements can be followed by a flood of grid connection requests, in such a way that virtually all existing capacity could be exhausted. To avoid such a situation, permits must only be delivered to reliable investors. To counteract speculation, the validity of permits must be limited in time, resale of the permits to a third party must be prohibited, and large project developers can be asked for guarantees to ensure they live up to their commitment.

    Key Recommendation 6: Ensure the financing of network operators
    The benefits that PV brings to electricity networks, especially at the distribution level, come at a cost, meaning that necessary investments must accompany the development of PV and its smooth integration on electricity networks. The lack of available financing for DSOs or TSOs can block the network capacity enhancement. Therefore EPIA recommends ensuring that operators be funded to fulfill necessary maintenance and upgrade tasks on the electricity grid.


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