Although solar costs have been dropping in recent years, solar power is still more expensive than conventional and other renewable energy options, and in most applications solar power still needs continuing government policy support. However, the need to achieve multiple objectives and ensure sufficient political support for solar power makes it difficult for policy makers 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 policy making. In this paper, we present a framework to critically analyze the objectives behind different country policies, how factors such as macro-economic conditions and development paradigms affect the policy outcomes and finally, how these outcomes affect the overall cost reduction of solar energy. We find that while the extent of cost reduction through creation of large demand remains to be seen, it is essential for governments to provide adequate support for leapfrog RD&D, and exploit real comparative advantages across countries for effective solar cost reduction. Policy makers need to optimally design their policies by balancing national objectives and paying capacity with the global objective of solar power cost reduction in order to realize its full potential.

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