This paper constructs panel data from an 11-year data set on all 47 prefectures of Japan, covering the period 1996-2006. We use this data set to analyze the factors affecting photovoltaic (PV) system diffusion. Our empirical results show that the regional government policy clearly helps to promote PV system adoption. It is also found that installation costs have a significant negative effect on PV system adoption, whereas housing investment and environmental awareness among residents have a positive effect. We believe that this finding has a significant implication for further PV system diffusion because it suggests the importance of regional diffusion policies reflecting the environmental awareness of regional residents. (C) 2011 Elsevier Ltd. All rights reserved.