On the limitations of current support mechanisms for solar electricity in Sweden : A quantification of lost opportunities of solar electricity as a consequence of the regulation for tax exemption being insufficiently designed

Abstract: The Swedish government has set the goal for renewable electricity generation high: 100 % renewable electricity generation by 2040. Further on, the Swedish solar strategy has a target for the same year: 7-14 TWh electricity extracted from solar energy. Consequently, supporting strategies and legislations to increase the share of solar electricity is very important in order to achieve set targets. In parallel to this a number of actors and stakeholders on the Swedish solar electricity market has raised concerns regarding the existing regulations and support systems and claims that they are designed to favor primarily residential owners and small systems and tends to limit the expansion of solar electricity in Sweden since investments in larger facilities is said to be less favorable and therefore, avoided. Primarily, the upper limit for tax exemption has been lifted as an obstacle to the ongoing expansion. Based on existing installations, there are reasons to believe that this alleged concern might be justified; however, no research projects or similar investigations have studied the consequences of the design of the existing regulations and support systems and how it might affect the ongoing expansion of solar electricity in Sweden. This project therefore, aimed to study how the existing regulation for tax exemption and its upper limit affect the ongoing expansion and if it might result in lost opportunities of solar electricity due to the lack of investments in larger facilities. The research question to be answered through this research project was: Does the insufficient design of the regulation for tax exemption limit the expansion of solar electricity in Sweden and what is the quantity of the potential loss of opportunities? The main objectives to be obtained by answering the research question were accordingly: - Determine if the design of the regulation and the upper limit for tax exemption affects the ongoing expansion by not supporting larger systems as much as smaller; - Investigate the impact of the upper limit and quantify the lost opportunities because of the design of the regulation being insufficient; - Compare the potential gains with the loss of tax money. The question was to be answered using two analyses: a cost analysis which aimed to define the profitability and the incentives to invest in solar PV systems with different installed peak power and a scenario analysis which aimed to quantify the opportunities and loss of potential solar electricity based on three different scenarios. The potential gains and the loss of tax money was then compared to set the advantages and the disadvantages, of a possible reformulation of the regulation, against each other.  The results from the cost analysis showed that a solar PV system with an installed peak power greater than 255 kWp (i.e. the upper limit for tax exemption) are not able to make any energy savings (i.e. the cost of generating solar electricity is greater than the purchased price of electricity hence, it is more profitable to purchased electricity from the common grid) in contrast to a solar PV system with an installed peak power less than 255 kWp. Surplus electricity supplied to the common grid represent expenses (i.e. the cost of generating the solar electricity is greater than the price of selling it) regardless of the installed peak power. Consequently, regardless of the electricity being used for self-consumption or supplied to the common grid, energy savings and thus, profitability is not possible if the installed peak power exceeds the upper limit for tax exemption. The results from the scenarios analysis shows that the existing regulation and upper limit might lead to 16,1 TWh of lost opportunities for solar electricity in three segments (i.e. Supermarkets, Hospitals and Shopping malls) which based on the average electricity consumption have the ability to consume the electricity for self-consumption and thus, not causing major problems for the grid owners. This is to be compared with the loss of tax money which is close to zero since solar PV systems with an installed peak power greater than 255 kWp are very rare. Based on these results, the conclusions were that the existing regulation for tax exemption is insufficiently designed and make solar PV systems with more than 255 kWp installed peak power unprofitable, regardless of the electricity being used for self-consumption or supplied to the common grid and as a consequence, investments in solar PV systems with an installed peak power greater than 255 kWp are unlikely and the existing design therefore, limit the expansion since great opportunities and large potential for solar electricity generation is being unused.