Renewable energy investments have increased substantially throughout the World due to the limitation of fossil fuels, the energy supply security, the increasing environmental awareness, and the concerns over sustainable and clean energy consumption. The long-term and costly return of renewable energy investments has led governments to develop incentive mechanisms with medium and long-term plans. Notwithstanding, limited public resources necessitate determining the optimal incentive mechanism for policymakers to design effective investment plans in the renewable energy sector. Thus, the purpose of this study is to reveal the effects of incentive mechanisms on renewable energy investments and determine the optimal incentive mechanism. The relationship between the incentive instruments and the installed solar energy power capacity is analysed in the study. Analyses are carried out with the dynamic panel data method based on single-stage and two-stage Arellano-Bond Generalized Moments Methods for 28 countries with annual data belonging to the period between 2001 and 2015. The findings indicate that while feed-in tariff/feed-in premium, tax incentives, green certificate system, and GDP positively correlate with installed solar energy capacity, energy import negatively correlates with the installed solar energy capacity. Subsidies and loans show no correlation with the installed solar energy capacity.