Building Competitive Green Industries

44 45 46TABLE C3. Market development (continued)Name ofinstrumentDescription ofinstrumentEvaluationCommitmentperiodExampleRenewableEnergy PortfolioStandards orObligationsand Renewableenergycertificates(RECs)Obligations orportfolio standardsare governmentimposedmandatorytargets for utilities togenerate X percentof their power fromRETs. This normallyresults in the creationof certificates whichcan “surrendered” ortraded, providing amarket-based subsidy.Portfolio standards (or obligations)tend to drive price competitionbetween different RETs, howeverthey often fail to support import butmore expensive technologies, suchas solar PV. In order to stimulateinvestment in renewable energycapacity, the demand and pricefor RECs has to be high. WhileRECs are a market mechanism,prices are largely influenced by theregulatory framework that createsthem. Therefore the penalties fornoncompliance must be significant,and floor prices should not beset so low that the value of RECsbecomes of marginal importance.As withall marketmechanisms, theeffectiveness ofRECs dependsupon sustainedgovernmentcommitment.RE portfolio standards andobligation have been usedin the United States, UnitedKingdom and Sweden asan alternative to feed-intariffs and have succeededin supporting mostlyonshore wind power. RECshave been traded in India 44since 2011 however marketparticipation has been lowand has failed to attractsignificant investment.Feed-in tariffs(FITs) 45Provide a minimumguaranteed pricepaid by utilities toall generators ofelectricity fromrenewable energy,supplying the grid.The exact value oftariff support is set bygovernment, usuallyfor a fixed time period,and tends to varyaccording to the type ofgeneration technology.Simpler than RECs, FITs havebeen successful in many OECDcountries, driving markets forwind and solar power where SMEparticipation is high for installationand operation. They are unlikeconventional subsidies in that theyare intended to spur market andtechnological development, drivingcost reductions in the process,normally by tapering tariff overtime. FITs are conceptually verysimple and easy to administer,offering clear financial riskmanagement for investors.However, once renewables take upa larger share of the generationmarket place, fixed-price (asopposed to market-based) FITs canbecome expensive and harder forgovernments to justify.The number ofyears offeredby the FIT is offundamentalimportance andcan range from5-30 years80+ countries worldwidehave legislated FITs,however the vast majorityof RET investmentssupported by FITs has beenin developed countries.This is partly because ofthe rapid uptake of FITs indeveloping countries since2009, following which thereis a delay during projectsare designed and investorsare mobilized. 46AdvancedmarketcommitmentA legal contractbetween publicor private entitiesthat guaranteesthe purchase of atechnology, subject tomeeting minimal, predefined,performancerequirementsA means to minimize investmentrisk in important but unproventechnologies, where payment is onlymade upon delivery. To date hasonly been used for the developmentof medicine and is most relevantin addressing specific technicalproblems or requirements.Of minimal relevance to cleantechnology, and its effectivenessdiminishes along with a high degreeof technological uncertainty.Technologyspecificandtime-boundPneumococcal Vaccinesupported by the GlobalAlliance for Vaccines andImmunizationontinued on next page44 For an assessment of the first year of REC trading in India, see: www.isb.edu/download/16739/Falling-Short-An-Evaluation-of-the-Indian-Renewable-Certificate-Market.pdf4546 For a comprehensive overview of FITs for developing countries, see: www.unep.org/pdf/UNEP_FIT_Report_2012F.pdf98 Building Competitive Green Industries: The Climate and Clean Technology Opportunity for Developing Countries