 Governments should rationalize duty and tax structures, if these discriminate against stand alone system development. Relatively high import duties and other taxes (particularly on PV modules) can severely limit the potential for commercially viable, market-driven solar home system programs. Duties and taxes on system components raise the financial costs of the systems. At the same time, subsidies for rural grid service or for kerosene often lower the cost of competing energy options to well below their economic value. While subsidies may be justified for social or developmental objectives, they can create serious distortions that hinder stand alone system use in areas where these systems are the least-cost economic option. Experiences in India and Indonesia show that changes to import duties on PV modules strongly affected the rate at which the start-up enterprise could expand their sales.
Tax incentives are not generally used to promote stand-alone systems in developing countries because they do not directly address the affordability barrier. They have been used successfully to promote stand-alone systems in industrialized countries, where affordability of the system is not an issue. In those countries, a high cost can still be a barrier because it results in a long payback time for systems relative to conventional energy supplies, and tax credits or deductions can reduce the payback time and incentivize system purchases.
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