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SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUALpage 9.16not a tendency for the development of renewable energy to enter a “boom andbust” cycle.Quota mechanisms are relatively new, so there is limited evidence on their performance.However, it appears that the emphasis on the market can have twoparticularly significant impacts for generating technologies: Only the cheapest forms of generation will receive contracts. Less developed—and therefore riskier—technologies will not receive contracts,so limiting their future development and deployment.If a government wants to support a diverse portfolio of renewable energy technologies,including developing technologies, other support mechanisms (such as capitalgrants) will be required to compensate for the short-term nature of the market.Review questionWhat are the main differences between a feed-in tariff system and a quotasystem?Tender schemesUnder a tendering scheme, competitive bids are put forward to government forindividual renewable energy projects, following a call for tenders launched by thegovernment.Key features: Suppliers are obliged to buy a certain amount of renewable power at a premiumprice. Although specific characteristics vary, it is likely that the government will:Set an overall target for renewables-based generation, adding specified limitsfor individual technologies within that.Set a specified time for contracts for the generation, during which time theywill receive a premium price. The winning contracts are selected by the government, usually on the basisof cost, although in some schemes other factors such as technical quality andsocio-economic aspects also play a role.
MODULE 9: RENEWABLE ENERGY: REGULATORY AND POLICY OPTIONSpage 9.17 Successful projects can either:Receive the price they have bid, orA “strike” price based on an assessment of developers needs. Can be banded to encourage the development of newer technologies.Because there is a guaranteed premium for a set period of time, tender schemescan increase investor confidence in renewable energy projects. This is, of course,highly depended on the length of the contact and the price offered. However, thebureaucracy of the schemes and the government tender processes can act as adisincentive to put projects forward, as this implies significant project developmentcosts without a guaranteed contract.In addition, tender schemes tend to be stop/start, with months or even yearsbetween different bidding rounds. This can create a “boom and bust” environmentfor developers, who may be active for some periods, but without new projectsfor others. This in turn can discourage the emergence of a domesticrenewable manufacturing industry, as there is no certainty about the frequencyof the periods of “boom”.Voluntary mechanismsGreen certificatesAs well as operating with a quota system, green certificates can be used in voluntarymarkets to support renewable-based generation. The certificates can betraded separately from the power and sold to consumers who are willing to paythe additional cost to support sustainable energies. However, in the case of voluntarymarkets, the success of the scheme will rely on consumer awareness andwillingness to pay the additional cost. Voluntary schemes pre-suppose a highlevelof environmental public awareness—which is virtually absent in most of sub-Saharan Africa.Because of their voluntary nature, green certificate schemes do not necessarilyprovide confidence to investors to develop new projects. Green certificateschemes therefore rely heavily on the success of other support measures (e.g.grants, soft loans, tax credits) in order to provide this confidence and to keepcosts low enough to make sustainable generation attractive to consumers. Otherstrategies, such as the disclosure of the generating source and green power marketingcan complement voluntary green certificate markets—these are outlinedbelow.
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