Solar installations in private homes: Upfront subsidies preferable to feed-in tariffs

For investors, the decision to install photovoltaic (PV) systems largely depends on whether the investment proves worthwhile. Subsidies play an important role in this context. Currently, the German subsidy programme is based on feed-in tariffs: Property owners are guaranteed a fixed price for 20 years at which the electricity they generate can be sold. This ZEW policy brief studies the German subsidy programme, considering the different effects on homeowners and landlords. Homeowner investors are will- ing to pay only 67 cents for every euro of total discounted future benefits from electricity production. Despite similar investment costs and feed-in revenues, landlords adopt considerably fewer PV installations systems for tenant electricity (Mieterstrom) due to high administrative costs. For purposes of economic policy, the undervaluation of future benefits from PV investments leads to an important conclusion: Had the investment costs been subsidised in advance, over one third of the subsidies spent in the past could have been saved. If landlords are to invest more, bureaucratic hurdles within the tenant electricity programme need to be removed - which would also result in cost savings. Electric vehicles and heat pumps are key elements of the energy tran- sition and crucial for achieving climate neutrality