Various policies such as feed-in tariffs, quota obligations and capital subsides were enacted to expand the uses of renewable energy (RE) in many countries. This study examined whether capital subsidies are cost effective in relation to the installation of solar photovoltaic (PV) facility. To do this, the capacity factor, which is one of the crucial factors for determining the unit cost of electricity from a solar PV system, was estimated from the monthly average clearness index data collected at various cities in Korea. Thermoeconomic analysis was applied to calculate the unit cost of electricity based on the calculated capacity factor of the solar PV system. Instead of subsidizing the same percent of the capital cost of each PV system installation, it is reasonable for the government to adopt a measure to match the subsidy paid to the payback period of the initial investment for all 5 million potential solar PV users in Korea. (C) 2012 Elsevier Ltd. All rights reserved.