ABSTRACT
The crucial environmental, social and economic benefits of renewables have been proven to be delivered most effectively through a comprehensive, well-designed and implemented FIT system. The following points constitute a distillation of the lessons learnt from around two decades of European feed-in legislation experience.
Provide tariffs for all potential developers and investors, including utilities, to encourage broad participation.
Eliminate barriers to grid connection. Guaranteed access to, and strategic development of the national grid, are essential elements in developing investor confidence.
Ensure that tariffs are high enough to cover costs and ensure a profitable operation.
Keep tariffs to a level at which they provide just enough return on investment for profitable operation, but add no unnecessary burden to the end consumers, as this will erode support for renewables.
Encourage technological development through annual rate decreases for newly installed RE systems.
Provide differentiated tariffs to provide only the level of support that is necessary at the time for each technology.
Design the system to be flexible. It is essential in the design of policies that adjustments (fine-tuning, but not wholesale changes or elimination of policies) can be made on a regular, predetermined time schedule if circumstances change. Governments must be able to address existing barriers as they become apparent, and new barriers as they arise. Policies also must be designed to allow developers/generators flexibility for meeting government mandates.
Policies must match RE and carbon emission reduction objectives, and should take account of a country or region’s variation in resource potentials, location, technology type, and timing.
Provide financial security: guarantee tariffs for a long enough time period to ensure sufficient rate of return. The long-term certainty that results from guaranteed prices over 15–20 years helps companies to invest with confidence in technology staff expansion and training, and the establishment of other services and resources on a longer-term basis. Obtaining finance from banks and other investors is easier, as they are assured a guaranteed rate of return over a specified period of time. Long time periods also help to provide enough lead time to allow industries and markets to adjust.
Develop appropriate administrative procedures and streamlined application processes. Keep administrative costs and demands low. In general, FITs are easier to administer and enforce than quota systems. As with quota systems, policy makers are required to establish targets and timetables, and to determine which technologies are qualified (type and scale).
Keep the structure of the system as simple as possible. Policies must be easy to implement, understand and comply with. Procedures of permission and administration, where necessary, must be as clear and simple as possible.
Ensure public acceptance by raising awareness, and designing the system so that the costs to the customer are minimal. The German system is exemplary in this regard, adding only around one euro per month to the cost of RE deployment in the country through the EEG. Independence from state budgets is likely to help with positive public perceptions.
Make policies both credible and enforceable. If policies are not credible and effective, or are not enforceable (or enforced), compliance will be diminished.
Transparency is important for suppliers and consumers of energy and is necessary to avoid abuse. It facilitates enforcement, maximizes confidence in policies, and helps ensure that mechanisms are open and fair.
If possible, a stepped tariff design should be implemented to reduce windfall profits, and therefore reduce costs for consumers (Ragwitz et al, 2005; Sawin, 2004).
