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Feed-In Tariffs and Quotas for Renewable Energy in Europe

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Feed-In Tariffs and Quotas for Renewable Energy in Europe Forum FEED-IN TARIFFS AND sures. Up to now, these policies have been imple- mented exclusively on a national level and aim to QUOTAS FOR RENEWABLE fulfil the national targets as set in the RES-E direc- ENERGY IN EUROPE* tive. However, based on the currently implemented policies, these targets will most likely not be met in the majority of countries, which indicates that RES- E support systems are still not designed in a suit- GUSTAV RESCH**, able way. MARIO RAGWITZ***, ANNE HELD***, Evaluation of policy instruments for promoting THOMAS FABER** AND renewable electricity from a historical perspective REINHARD HAAS** Classification of policy instruments and develop- ment of RES-E policies in the EU enewable electricity has increased significantly Rin recent years on a global scale and especially Within this study, the assessment of direct regulatory within Europe. A major reason for this development promotion strategies is carried out by focusing on a at the European level is the national support strate- comparison between price-driven (e.g. FITs) and gies triggered by Directive 2001/77/EC on renewable quantity-driven (e.g. quotas based on TGCs) strate- energies in the electricity sector (European Par- gies, which can be defined as follows: liament and Council 2001), which set the renewable energy sources (RES-E) target of 21 percent at the Feed-in tariffs (FITs) are generation-based, price- EU-25 level for the year 2010 and specified corre- driven incentives. The price that a utility or supplier sponding targets for all 25 member states. All EU or grid operator is legally obligated to pay for a unit member states have introduced policies to support of electricity from RES-E producers is determined the market introduction of RES-E and most of them by the system. Thus, a federal (or regional) govern- have started to improve the corresponding adminis- ment regulates the tariff rate. It usually takes the trative framework conditions (e.g. planning proce- form of either a fixed amount of money paid for dures, grid connection) as well. The market diffusion RES-E production, or an additional premium on top of new renewable energy technologies has increased of the electricity market price paid to RES-E pro- significantly over the last decade. The existing sup- ducers. Besides the level of the tariff, its guaranteed port instruments encompass feed-in tariffs (FITs), duration represents an important parameter when quota-based tradable green certificates (TGCs), evaluating the actual financial incentive. FITs allow investment grants, tender procedures and tax mea- technology-specific promotion and acknowledge future cost-reductions by applying dynamically decreasing tariffs. * This assessment of the effectiveness and economic efficiency of support schemes for renewable electricity was conducted for the European Commission, DG TREN within the European research project OPTRES (www.optres.fhg.de). For a detailed discussion of Quota obligations based on Tradable Green Certi- the above illustrated topic we refer to Ragwitz et al. 2007. ficates (TGCs) are generation-based, quantity-driven The authors and the whole project consortium gratefully acknowl- edge the financial and intellectual support of this work provided by instruments. The government defines targets for the Intelligent Energy for Europe – Programme. In particular, spe- cial thanks go to the project officers Beatriz Yordi, DG TREN, and RES-E deployment and obliges a particular party of Ulrike Nuscheler, IEEA. ** Vienna University of Technology, Institute of Power Systems the electricity supply-chain (e. g. generator, whole- and Energy Economics, Energy Economics Group, Vienna, Austria. saler or consumer) with their fulfilment. Once de- *** Fraunhofer Institute Systems and Innovation Research, Karls- fined, a parallel market for renewable energy certifi- ruhe, Germany. E-mail of lead author: [email protected]. cates is established and their price is set following CESifo DICE Report 4/2007 26 Forum demand and supply conditions (forced by the obliga- electrical power. The definition of effectiveness used tion). Hence, for RES-E producers, financial support in this analysis is given in the following equation: may arise from selling certificates in addition to the revenues from selling electricity on the power mar- i i i G G ket. In principle, technology-specific promotion is E = n n1 n ADD POT i also possible in TGC systems. But it should be noted n that separate markets for different technologies will i En Effectiveness indicator for RES lead to much smaller and less liquid markets. technology i for the year n i Gn Existing normalised electricity generation by RES Figure 1 shows the evolution of the main support technology i in year n ADD POT i instrument for each country. Only 8 of the 15 coun- n Additional generation potential of RES tries regarded did not experience a major policy shift technology i in year n until 2020 during the period 1997–2006. The current discussion within EU member states focuses on the comparison This definition of effectiveness has the advantage of of two opposed systems, the FIT system and the being unbiased with regard to the available potential quota regulation in combination with a TGC-mar- for individual technologies in a specific country. ket. The latter have replaced existing policy instru- Member states need to deploy RES-E capacities ments in some European countries, such as Belgium, proportional to the given potential in order to Italy, Sweden, the UK and Poland. Other policy demonstrate the comparable effectiveness of their instruments, such as tender schemes, are no longer instruments. This appears to be a meaningful used in any European country as the dominating approach since the member state targets, as deter- policy scheme. However, there are instruments like mined in Directive 2001/77/EC, are also mainly production tax incentives and investment incentives based on the realisable generation potential of each which are frequently used as supplementary instru- country. ments. Only Finland and Malta apply them as their main support scheme. Figure 2 shows the average annual effectiveness indi- cator for wind onshore electricity generation for Effectiveness of policy instruments 1998–2005 for EU-15 countries. Several findings can be derived from these figures. Firstly, the three mem- The effectiveness of a policy for renewable electrici- ber states showing the highest effectiveness during ty is based on its ability to increase the generation of the considered period – Demark, Germany, and Figure 1 Spain – applied fixed feed-in tar- iffs during the entire period EVOLUTION OF THE MAIN POLICY SUPPORT SCHEMES IN EU-15 1998–2005 (with a relevant sys- MEMBER STATES tem change in Denmark in 2001). The resulting high investment 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 All RES-E security as well as low adminis- AT technologies All RES-E trative barriers stimulated a BE technologies All RES-E strong and continuous growth in DK technologies All RES-E Feed-in tariff wind energy during the last FI technologies Wind decade. It is often claimed that FR Bioenergy Quota / TGC PV the high level of the feed-in tar- All RES-E DE technologies iffs is the main driver for in- Tender All RES-E GR technologies vestments in wind energy, espe- All RES-E Tax incentives / IE technologies Investment cially in Spain and Germany. Wind grants However, as will be shown in the IT Bioenergy PV section below, the tariff level is All RES-E Change of the LU technologies system not particularly high in these two All RES-E NL technologies countries compared with the All RES-E Adaptation of PT technologies the system other countries analysed here. All RES-E ES technologies This indicates that a long-term All RES-E SE technologies and stable policy environment is All RES-E UK technologies actually the key criterion for the 27 CESifo DICE Report 4/2007 Forum Figure 2 higher than the costs of genera- tion. The reasons for the higher EFFECTIVENESS INDICATOR FOR WIND ONSHORE average effectiveness indicator 1998–2005 support level expressed by the % 10 current green certificate prices include still immature TGC 8 markets, the non technology- specific design of the currently 6 applied TGC-systems as well as 4 the higher risk premium re- quested by investors. In the case 2 of Spain and Germany, the sup- port level indicated in Figure 3 0 AT BE DK FI FR DE GR IE IT LU NL PT ES SE UK EU15 appears to be above the average Feed-in-tariffs Quota/TGC Tender Tax incentives/Investment grants level of generation costs. How- Note: This figure depicts the effectiveness indicator for wind onshore electricity in the period 1998 to 2005 ever, the low cost potentials in the EU-15 showing the relevant policy schemes during this period. have already been exploited in these countries due to recent success of developing RES-E markets. As can be success in market growth. Therefore a level of sup- observed in a country like France, high administra- port that is moderately higher than average costs tive barriers can significantly hamper the develop- seems to be reasonable. ment of wind energy even under a stable policy envi- ronment combined with reasonably high feed-in tar- Expected revenues and profits for investors iffs. In order to correlate the effectiveness of an instrument Economic efficiency from society’s point-of-view with the efficiency of support as defined in the previ- ous section, the levelised profit of potential wind ener- In order to analyse the economic efficiency of sup- gy investments was calculated for Austria, Belgium, the port from a historical perspective we compare the Czech Republic, France, Germany, Ireland, Italy, level of support in the case of wind energy onshore Lithuania, Spain, Sweden and the UK for the year and the corresponding costs of electricity genera- 2004.
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