Regulatory and policy options to encourage development of ...

MODULE 9: RENEWABLE ENERGY: REGULATORY AND POLICY OPTIONSpage 9.45ANNEX I.METHODOLOGY AND EXAMPLES ONHOW TO CALCULATE THE LEVEL OFFEED-IN TARIFFSMethodologyIntroductionA feed-in tariff (FIT) is a pre-defined guaranteed minimum price or a guaranteed premiumon the market price for every kWh of green electricity generated. The tariff scheme is usuallydifferentiated for different green electricity production technologies, with less developedtechnologies receiving higher prices for their output. The scheme is usually definedfor a specified number of years, but again this can vary depending on the technology.Overall aimThe overall aim when designing a set of feed-in tariffs is to fix a premium tariff which:Covers the extra cost of electricity production using the given technology (thus stimulatinginvestment)While at the same time avoids over-subsidizing the given technology (thus creatingwindfall profits and making the system more costly).Relevant parametersAs is illustrated in table 1, the minimum to average generation costs for renewable energiesvary widely among different technologies, and within the same technology, accordingto differences in the national market and resource conditions.Table 1.Minimum to average generation costs for the main green electricitytechnologies in EU15 1Range of electricityTechnologygeneration cost (€/MWh)Wind onshore 50-80Small-scale hydro 40-140Biomass using forestry residues 40-80Agricultural biogas 60-100Photovoltaics > 4501COM(2005) 627 final - Communication form the European Commission—The support of electricity fromrenewable energy sources—Annex 3 (December 2005).