ABSTRACT
This chapter discusses what may be an essential ingredient in the transition from non-renewable to renewable energy resources: federal subsidies. It describes the economic justification for federal subsidies to solar energy and outlines the current federal solar program. The chapter presents the appropriate types of federal subsidy programs and offers a methodology for striking the proper balance among these subsidy types. Economically feasible solar systems may have long discounted payback times exceeding the length of typical business loans. The chapter also discusses five federal programs for solar energy: research and development programs; demonstration programs; federal installation programs; purchase programs; and federal tax credits. The federal government sponsors a program for solar heating and cooling demonstrations. Demonstrations of the technical and economic viability of a technology may reduce the perceived risk to the end-user and thus help to remedy a first-best problem.
