This paper examines the potential effects of Germany's feed-in tariff policy for small roof-top solar PV systems installed between 2009 and 2030. Employing a partial equilibrium approach, we evaluate the policy by weighing the benefits from induced learning and avoided environmental externalities against the social costs of promoting residential PV. We use a dynamic optimization model that maximizes social welfare by accounting for learning-by-doing, technology diffusion, and yield-dependent demand. We find a wide range of effects on welfare, from net social costs of 2014 million (sic) under a "business as usual" scenario to 7586 million (sic) of net benefits under the positive prospects of PV's development. Whereas the "business as usual" scenario underestimates actual price reductions, the positive scenario mirrors recent price developments and feed-in tariffs in the German residential PV market. (C) 2011 Elsevier Ltd. All rights reserved.