Government subsidies for solar energy are examined in terms of the rationale for a Federal subsidy program, the type of program required, and the methods used to determine the funding level of each program. Justification for solar energy funding is based on the benefits to social welfare for both first best and second best reasons, which are described. Five policy instruments for optimal and socially acceptable subsidies are needed to solve all the problems outlined in the first- and second-best problems in order to analyze the associated economic problems, define the objectives, choose the proper instruments to meet those objectives, choose specific programs that are within the framework of those instruments, and optimize funding levels. 12 references.