1.4.2 bankable renewable energy support schemes
Although the organisational form of these tariffs differs from country to country some criteria have emerged as essential for successful renewable energy policy. At the heart of these is a reliable, bankable support scheme for renewable projects which provides long term stability and certainty.11 Bankable support schemes result in lower-cost projects because they lower the risk for both investors and equipment suppliers. The cost of windpowered electricity in Germany is up to 40% cheaper than in the United Kingdom,12 for example, because the support system is more secure and reliable.
© GP/JOHN NOVIS
Finance for renewable energy projects is one of the main obstacles in developing countries. While large scale projects have fewer funding problems, there are difficulties for small, community-based projects, even though they have a high degree of public support. The experiences from micro credits for small hydro projects in Bangladesh, for example, or wind farms in Denmark and Germany, show how economic benefits can flow to the local community. With careful project planning based on good local knowledge and understanding, projects can achieve local involvement and acceptance. When the community identifies the project rather than the project identifying the community, the result is generally faster bottom-up growth of the renewable energy sector. The four main elements for successful renewable energy support schemes are therefore:
• A clear, bankable pricing system. box 1.3: experience of feed-in tariffs
• Feed-in tariffs are seen as the best way forward, especially in developing countries. By 2009 this system has created an incentive for 75% of PV capacity worldwide and 45% of wind capacity. • Based on experience, feed-in tariffs are the most effective mechanism to create a stable framework to build a domestic market for renewable energy. They have the lowest investment risk, highest technology diversity, lowest windfall profits for mature technologies and attract a broad spectrum of investors.13
• Priority access to the grid with clear identification of who is responsible for the connection, and how it is incentivised. • Clear, simple administrative and planning permission procedures. • Public acceptance/support. The first is fundamentally important, but it is no good if you don’t have the other three elements as well.
• The main argument against them is the increase in electricity prices for households and industry, because the extra costs are shared across all customers. This is particularly difficult for developing countries, where many people can’t afford to spend more money for electricity services.
references 10 EFFECTIVE AND EFFICIENT LONG-TERM ORIENTED RENEWABLE ENERGY SUPPORT POLICIES, FRAUNHOFER INSTITUTE, MARIO RAGWITZ, MARCH 2010. 11 ‘THE SUPPORT OF ELECTRICITY FROM RENEWABLE ENERGY SOURCES’, EUROPEAN COMMISSION, 2005. 12 SEE ABOVE REPORT, P. 27, FIGURE 4. 13 EFFECTIVE AND EFFICIENT LONG-TERM ORIENTED RENEWABLE ENERGY SUPPORT POLICIES, FRAUNHOFER INSTITUTE, MARIO RAGWITZ, MARCH 2010.
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POLICY CHANGES IN THE ENERGY SECTOR
Since the early development of renewable energies within the power sector, there has been an ongoing debate about the best and most effective type of support scheme. The European Commission published a survey in December 2005 which concluded that feed-in tariffs are by far the most efficient and successful mechanism. A more recent update of this report, presented in March 2010 at the IEA Renewable Energy Workshop by the Fraunhofer Institute10 underscores the same conclusion. The Stern Review on the Economics of Climate Change also concluded that feed-in tariffs “achieve larger deployment at lower costs”. Globally more than 40 countries have adopted some version of the system.
For developing countries, feed-in laws would be an ideal mechanism to boost development of new renewable energies. The extra costs to consumers’ electricity bills are an obstacle for countries with low average incomes. In order to enable technology transfer from Annex 1 countries under the Kyoto Protocol to developing countries, a mix of a feed-in law, international finance and emissions trading could establish a locally-based renewable energy infrastructure and industry with help from the wealthier countries.
1 climate & energy policy |
image WANG WAN YI, AGE 76, ADJUSTS THE SUNLIGHT POINT ON A SOLAR DEVICE USED TO BOIL HIS KETTLE. HE LIVES WITH HIS WIFE IN ONE ROOM CARVED OUT OF THE SANDSTONE, A TYPICAL DWELLING FOR LOCAL PEOPLE IN THE REGION. DROUGHT IS ONE OF THE MOST HARMFUL NATURAL HAZARDS IN NORTHWEST CHINA. CLIMATE CHANGE HAS A SIGNIFICANT IMPACT ON CHINA’S ENVIRONMENT AND ECONOMY.