Renewables – development policies
Filip Černoch
cernoch@mail.muni.cz
Phases of deployment of RES
1) Inception phase – first examples of expensive technology
deployed under commercial terms
2) Take-off phase – market starts to grow rapidly. Costs are
expected to fall, aim is to have managed deployment with limited
overal policy costs
3) Market consolidation phase – deployment grows toward the
maximum practicable level
• Public funds for RES development
• Infrastructure policies to build and maintain market
infrastructure
• Construction and design policies
• Site prospecting, review and permitting
• Equipment standards and certification
• Government procurement
• Custromer education
• Indirect support policies
• …
• …
Support policies
Tackling economic barriers
• RES projects are capital-intensive with low operating costs
• The logical support for them would be cost reduction policies,
not operating subsidies. This was the norm in the early days
and some countries still give personal income, corporate,
property tax and VAT exemptions for RES
• Consumer levies also hit the poorer harder.
Cost-reduction policies
Designed to provide incentives for voluntary investments in
RES by reducing the cost of these investments
• Reduction of capital costs up front via subsidies and rebates.
(In the EU a long history in 1991; e.g. Germany´s 1000 solar
roofs program to subsidise individual household purchases
of PV of up to 60% of capital system costs)
• Reduction of capital costs after purchase via tax relief (esp.
U.S., but also Japan, Europe, India…)
• Offsetin costs through the payments based on power
production via production tax credits (grants)
• Providing concessionary loans and other financial assistance
Operating subsidies
• Funding through consumer levies has the advantage of a) not
putting a further burden on hard-pressed government budgets,
and b) being less visible, except in countries where the RES
surcharge is clearly marked on consumers’ energy bills.
• More efficient in terms of faster dissemination of RES
technology
Operating subsidies
• Price-setting policies reduce cost- and pricing-related barriers
by establishing favorable pricing regimes for RES relative to
other sources of power generation. The quantity is
unspecified, but prices are known in advance
• Quantity-forcing policies do the opposite. They mandate a
certain percentage (or absolute quantity of generation) at
unspecified prices
Price setting policies
• Feed-in tariffs. Exists in 21 EU states (2013), provide a fixed
rate of subsidy for fixed period. Designed to cover all
producer’s costs and profit, they essentially replace the market.
Very successful in triggering large deployment of RES, but at a
high cost. Instrument of choice for big RES players (Germany,
Spain). Basic rule is government sets the price, market (investor
response) sets the quantity, but many recent amendments to
control cost
• Grid priority - the grid must take RES electricity first
• Feed-in premiums act as a partial FiT providing a top-up to
electricity market price. Increasing popularity
Quantity forcing policies
• Quota obligations with tradeable certificates. Government sets
the quantity, the market the price. These exist in 6 EU states
(2013), have been less successful, but are cheaper
• Two sources of revenues. 1) The power is sold on the normal
power market. 2) RES generators sell a certificate that
represents a certain amount of renewable electricity they
generated on the separated market. Demand for these
certificates is ensured by a quota obligations
Source: Ragowitz
Comparison
• FiTs generally regarded as more effective, because they
can be tailored to specific technologies. Drawback
include
• a) difficulty of setting the right price – too high and
money is wasted, too low and no deployment – and once
the price is set, it is hard to make radical changes without
breaking contracts
• b) they insulate the RES producer from the market. So
move towards feed-in premiums (fixed or variable) which
top up whatever the RES producer gets from the market.
• Quota systems with tradable certificates tend to be
cheaper, but favour mature technologies like onshore
wind and biomass
What makes good support scheme?
• Stability. Changes, basically reductions in tariffs to reflect falling
costs, are inevitable, but should be transparent and predictable -
for instance either at regular date or when a certain annual
volume level of RES deployment is reached. If the latter, then
the volume should be announced in advance, and be easy for
investors to monitor. Example of Germany´s corridors
• Level of support. This obviously matters to investors. But in
surveys investors say the money comes second to stability. So
governments that can encourage perception of stability can get
away with lower levels of financial support
What makes bad support scheme?
• Financial cuts and moratoria on new projects may be
unavoidable. But retroactive measures could do longer lasting
damage to investment
• Spain: in 2010 put annual limit for hours of support payment for
nearly all existing RES-E producers who now after every
August/September have to operate without support, as well as in
2012 suspending all new projects
• Czech republic: in 2010 imposed retroactive profit tax on all
bigger PV installations
• Bulgaria: in 2012 introduced retroactive grid access tax for all
producers receiving FiTs. Discriminatory because for RES-E
only, and may break EU legal ceiling on transmission charges
Indirect promotion policies – emission
reduction policies
• Policies to limit GHG increase the price of carbon
(cap and trade policies), resulting in higher
competitiveness of RES.
• Regulation – favours RES (and nuclear) in energy
mixes at the expense of fossil fuels
• Taxation – higher price of fossil energy
Indirect promotion policies – power sector
restructuring policies
Complex changes of traditional mission and mandates of electric
utilities
• Self-generation by end users and distributed generation
technologies. Shift to end users being also independent power
producers. RES is well suited to self-generation (but
competition from gas)
• Competitive retail power markets and green power sales –
consumers are free to select their power suppliers from those
operating in a given market, they can choose for the green
energy. (In Netherland after restructuring in 2001 1 million green
power customers signed up within the first year – there was also
a large tax on fossil fuels)
• Privatization (and/or commercialization) of utilities.
Utilities are becoming private for-profit entities that
must act like commercial corporation. (or losing state
subsidies in terms of state-run companies). It could
affects the RES deployment in many ways, pozitive or
negative, depending on the situation
• Unbundling of generation, transmission and
distribution. Unbundling can provide greater
consumer incentives to self-generate using RES (to
avoid transmission and distribution charges)
Sources
• IEA (2011): Renewable Energy. Policy Consideration
for Deploying Renewables
• IEA (2011): Deploying Renewables: Best and Future
Policy Practice