Innovative Feed-In Tariff Designs that Limit Policy Costs [report]

C. Kreycik, T. D. Couture, K. S. Cory
2011 unpublished
Executive Summary Feed-in tariffs (FITs) are the most prevalent renewable energy policy used globally to date, and there are many benefits to the certainty offered in the marketplace to reduce development risks and associated financing costs and to grow the renewable energy industry (de Jager and Rathmann 2008; Deutsche Bank 2009; Mendonça et al. 2009; Ragwitz et al. 2007 ). However, concerns over escalating costs in jurisdictions with FIT policies (Deutsche Bank 2009; Germany 2010; Reuters
more » ... ) have led to increased attention on cost control in renewable energy policy design. In recent years, policy mechanisms for containing FIT costs have become more refined, allowing policymakers to exert greater control on policy outcomes and on the resulting costs to ratepayers. As policymakers and regulators in the United States begin to explore the use of FITs, careful consideration must be given to the ways in which policy design can be used to balance the policies' advantages while bounding its costs. This report explores various mechanisms that policymakers across the world have implemented to limit FIT policy costs. If designed clearly and transparently, such mechanisms can align policymaker and market expectations for project deployment. Overall, such certainty in the longterm expectations of capacity built and costs paid can help stabilize the market and help new projects secure financing. Three different policy tools are evaluated: (1) caps, (2) payment level adjustment mechanisms, and (3) auction-based designs. The report employs case studies to explore the strengths and weaknesses of these three different cost containment tools. These tools are then evaluated with a set of criteria including predictability for policymakers, predictability for the marketplace, and potential for unintended consequences.
doi:10.2172/1017104 fatcat:cofrd67ro5f4bberdc4rqpgyii