This has been fixed upstream by the following commits:

    commit 96b2c7459cb689a27996c2d69131e245940bc533
    Author: Andrea Bolognani <abologna>
    Date:   Fri Aug 7 17:39:10 2015 +0200

        cpu: CPU model names have to match on ppc64
        
        Limitations of the POWER architecture mean that you can't run
        eg. a POWER7 guest on a POWER8 host when using KVM. This applies
        to all guests, not just those using VIR_CPU_MATCH_STRICT in the
        CPU definition; in fact, exact and strict CPU matching are
        basically the same on ppc64.
        
        This means, of course, that hosts using different CPUs have to be
        considered incompatible as well.
        
        Change ppc64Compute(), called by cpuGuestData(), to reflect this
        fact and update test cases accordingly.
        
        Resolves: https://bugzilla.redhat.com/show_bug.cgi?id=1250977

    commit d87359af5eb5b21848da1906f8e34f107bbea151
    Author: Andrea Bolognani <abologna>
    Date:   Fri Aug 7 17:39:15 2015 +0200

        cpu: Simplify ppc64 part of CPU map XML
        
        Use multiple PVRs per CPU model to reduce the number of models we
        need to keep track of.
        
        Remove specific CPU models (eg. POWER7+_v2.1): the corresponding
        generic CPU model (eg. POWER7) should be used instead to ensure
        the guest can be booted on any compatible host.
        
        Get rid of all the entries that did not match any of the CPU
        models supported by QEMU, like power8 and power8e.
        
        Resolves: https://bugzilla.redhat.com/show_bug.cgi?id=1250977

Complete series:

    https://www.redhat.com/archives/libvir-list/2015-August/msg00288.html

Andrea,

Just briefly test using the scratch package on host POWER8E: 
libvirt-1.2.17-4.el7+abologna+bz1250977.ppc64le

Something need confirmation from you.
# virsh cpu-models ppc64le
POWERPC_e6500
POWERPC_e5500
POWER8
POWER7
POWER6

Using configuration below:
 <cpu><model>POWER8</model></cpu> can work
  <cpu><model>POWER7</model></cpu> can print error message as expected.

But a guest can start successfully using below two cpu configurations too.
    <cpu mode='host-model'>
    <model fallback='forbid'>power8</model>
  </cpu>
qemu ... -cpu host,compat=power8

or 
      <cpu mode='host-model'>
    <model fallback='allow'>power7</model>
  </cpu>
qemu ... -cpu host,compat=power7


Question :
'power7' and 'power8' did work before. But as now they are not listed in  virsh cpu-models ppc64 any more, it is a little inconsistent, right? What is your opinion?

The thing about CPU models 'power7' and 'power8' is that they are
not actually CPU models: they are compatibility modes, and can
only be used inside

  <cpu mode='host-model'/>

Using the <model> tag to specify compatibility was IMHO a bad
choice, as it mixes the two concepts; adding a new <compat> tag
instead would have been much better. However, that's how it's
been implemented and we can't really change it now.

Compatibility modes will probably be advertised by libvirt at
some point, but not among actual CPU models.

Hopefully this explanation clears things up. It not, feel free
to ask more questions :)

Test with below packages:
libvirt-1.2.17-5.el7.ppc64le
qemu-kvm-rhev-2.3.0-17.el7.ppc64le
kernel-3.10.0-302.el7.ppc64le

Below tests are done.
1. Check cpu-models output is updated with supported cpu models.
# virsh cpu-models ppc64
POWERPC_e6500
POWERPC_e5500
POWER8
POWER7
POWER6

2.Check model 'POWER8' can be supported for the guest. Guest can start successfully.  Qemu command line includes below option: '-cpu POWER8'
<cpu><model>POWER8</model></cpu>
or 
<cpu mode='custom' match='exact'>
    <model fallback='allow'>POWER8</model>
</cpu>

ALso test match='strict', 'minimum', the guest can start.

3.Check POWER7 guest can not run on a POWER8(POWER8E) host when using KVM
Edit XML like below, start the guest.
  <cpu mode='custom' match='exact'>
    <model fallback='allow'>POWER7</model>
  </cpu>

# virsh start q2
error: Failed to start domain q2
error: unsupported configuration: guest and host CPU are not compatible: host CPU model does not match required CPU model POWER7

Try match='strict', 'minimum', and the error message should be same.

4. Test  compatibility mode.
Edit the guest XML like below and start the guest.
  <cpu mode='host-model'>
    <model fallback='forbid'>power8</model>
  </cpu>
The guest can be started successfully.
When power8,  '-cpu host,compat=power8' should be in qemu command line.
When power7,  '-cpu host,compat=power7' should be in qemu command line.


Change 'power8' to 'power7' to test, the result is same as above.

5.Check below configurations should always work like before.
The guest should be able to start successfully. Check qemu process, 
' -cpu host'  should be in qemu command line.

   <cpu mode='host-model'> </cpu>
or 
   <cpu mode='host-passthrough'> </cpu>

6. Check # virsh capabilities has new model displayed. '<model>POWER8</model>' is displayed instead of  '<model>power8e</model>'
# virsh capabilities
<capabilities>

  <host>
    <uuid>113bc7e1-c986-4f34-acc4-01dcfdce8678</uuid>
    <cpu>
      <arch>ppc64le</arch>
      <model>POWER8</model>
      <vendor>IBM</vendor>
...
</capabilities>


All above tests are passed.

Andrea,

The tests in comment 7 are done. Do you think it is enough? Welcome your suggestions. Thanks.

Due to no new comments, mark it verified.

The tests listed in Comment 7 seem to cover all of the correct
configurations.

If you want to be more thorough, you could also check that
using invalid model names or compatibility modes, eg.

  <cpu mode='custom'>
    <model>POWER42</model>
  </cpu>

or

  <cpu mode='host-model'>
    <model>power42</model>
  </cpu>

prevents the guest from starting with an appropriate error
message.

Since the problem described in this bug report should be
resolved in a recent advisory, it has been closed with a
resolution of ERRATA.

For information on the advisory, and where to find the updated
files, follow the link below.

If the solution does not work for you, open a new bug report.

https://rhn.redhat.com/errata/RHBA-2015-2202.html