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SUSTAINABLE ENERGY REGULATION AND POLICYMAKING TRAINING MANUALpage 9.42companies into the private sector, such that provision ofservices is subject to greater competition or, in the case ofnatural monopolies to greater oversight with regard to economicefficiency.MonopolyThe situation where one company has the market power tocontrol the price or availability of a good or service.Quota mechanismsMore generally known as a renewable portfolio standard oras an obligation mechanism.Renewable energyThe use of energy from a source that does not result in thedepletion of the earth’s resources whether this is from a centralor local source.Renewable energycertificates (RECs)A certificate that represents a unit of renewable electricitygenerated that can be used to verify the fulfilment of an obligationto source a certain percentage of renewable generationas required in renewable portfolio standard schemes.Trading may be allowed so that companies that underachievetheir obligation can buy certificates from those who haveoverachieved.Renewable portfoliostandardA market-based mechanism devised by Nancy Rader andRichard Norgaard for the American Wind Energy Associationin 1996. It obliges supply companies or consumers to purchasea specific amount of electricity from renewable energysources. The key goal of such a mechanism is to minimizethe costs of increasing renewable energy capacity throughthe stimulation of competition to fulfil obligations. The RPSmechanism is also known as a quota or obligation mechanism.Examples of the RPS include the renewables obligationin the United Kingdom or the mandatory renewableenergy target in Australia). The market may be operatedthrough the creation and trading of certificates (renewableenergy certificates).Shallow connectionchargesIn essence these types of charges mean that generators payonly for the equipment needed to make the physical connectionof their generation plant to the grid network, and thatall other costs are the responsibility of the distribution networkoperator (DNO). This principle is usually introduced tostimulate distributed generation, and should be accompaniedwith the development of a transparent mechanism forthe recovery of costs incurred by DNOs relating to the necessaryreinforcement of the grid network (the “deep” costelements).
MODULE 9: RENEWABLE ENERGY: REGULATORY AND POLICY OPTIONSpage 9.43Strike priceA reference price as agreed between electricity retailers (buyers)and electricity generators (sellers) in their “contracts fordifference”. If the resulting wholesale price index (as referencedin the contract) in any time period is higher than the“strike” price, the generator will refund the differencebetween the “strike” price and the actual price for thatperiod. Similarly a retailer will refund the difference to thegenerator when the actual price is less than the “strikeprice”. Market players use this type of contract to protectthemselves from volatility in price and volume of electricity.Tariff mechanismA mechanism to encourage the growth of renewable energygenerating capacity. Notable examples are Denmark andGermany. A tariff mechanism generally provides a particularrate per kWh of electricity generated and guarantees thatpayments will continue for a fixed or minimum period. Thetariff can be fixed beforehand, can be fixed to reduce in specificgradations over time or can be linked to the averageelectricity tariff. Also known as a price mechanism.Tender mechanismA mechanism to encourage the growth of renewable energywhere competitive bids are put forward to government forindividual sustainable energy projects. Suppliers are obligedto buy a certain amount of renewable power at a premiumprice. Although specific characteristics vary, it is likely thatin the framework of this kind of policy the government willset an overall target for sustainable generation, and thenspecified limits for individual technologies within that andalso set a specified time for contracts for the generation, duringwhich time they will receive a premium price. The government,usually on the basis of cost, selects the winningcontracts although in some schemes other factors such astechnical quality and socio-economic aspects also play a role.
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