Regulatory and policy options to encourage development of ...

SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUALpage 9.36A quota system provides certainty on the level of green electricity that will be supplied,as the target is fixed, as well as a fine for non-compliance. A quota systemdoes not provide certainty on the price for green electricity, as the price will bedetermined by supply and demand in the tradable certificate market. The targetand the fine are the incentive for investors.In theory, a quota system with tradable certificates is more efficient, as it stimulatesthe market players to develop the cheapest technologies. On top of that, thetrade of certificates could improve efficiency between different regions or countries.On the other hand, the feed-in tariff system has proved very successful forwind energy on land in Germany and Spain, mainly thanks to the investor confidencethat the system provides.Question: Describe in short the main support mechanisms for renewableenergy.Answer:A feed-in tariff system: see answer above.A quota system: see answer above.Tender schemes:The government organizes tenders for individual renewable energy projects. Thebest proposal gets the approval to develop the project. The developer gets a lotof certainty about his project and about the income for his project (as a fixed premiumfor the green electricity will be paid by the suppliers). On the other hand,this system does not provide a continuous incentive for new renewable energyprojects, which hinders the development of a full-grown green electricity market.Voluntary mechanisms:The system is based on customers’ willingness to pay a higher price for green electricity.The system relies on the consumer’s awareness of the advantages of greenelectricity and the disadvantages of other forms of electricity. The marketing andlabelling of green electricity are key aspects in this support mechanism.Hybrid schemes involving two of the mentioned support mechanisms:A support scheme can make use of aspects of the different support mechanismsto correct a shortcoming of one of the individual support mechanisms.For instance, when a quota system does not provide enough investor confidencebecause of a lack of a fully-grown certificate market, the government can introducea minimum price for certificates to protect a developer from a cash flow problemshould the certificate price decrease dramatically. This happened for instance inFlanders, Belgium.To avoid this, in a feed-in scheme, the incentive for innovation would fade (becausethe price is fixed for a long period). The fixed premium can be decreased over time(for instance, five per cent per year for new projects) so the learning curve of thetechnology would not be harmed.