Feed-in tariffs – diffusion, design consideration and       implementation in developing countries                   Leona...
Countries with renewable energy targets     Countries without targets     Countries with targets                 From 45 i...
FIT Countries 1995  Countries with state FIT policy  Countries with national FIT policy                                   ...
FIT Countries 2000 Countries with state FIT policy Countries with national FIT policy                                     ...
FIT Countries 2010 Countries with state FIT policy Countries with national FIT policy                                     ...
World-wide installed capacity by incentive type (%)                 Wind                          Solar                 Ma...
FITs in Europe Countries with FiTs                                           Source: Klein et al. 2010                    ...
Basic feed-in tariff design• Purchase obligation   •   “Independent” from power demand• Fixed tariff payment based on the ...
Tariff payment duration • Formerly: short periods (logic of  conventional electricity sector) • Nowadays: long payment dur...
Eligible RE Sources/Technology• Definition of eligible producers (technologies?)• Assessment of resource availability• Sta...
Eligible RE Sources/TechnologyAssessment of other resource needed!       Wind offshore?              Tidal?   Geothermal?
Number of eligible technologies  Source: Jacobs 2012
More “advanced” FIT design• Advanced feed-in tariff design options are primarily for countries who have already supported ...
Pro and cons of tariff differentiation• Advantages of tariff differentiation:   • Avoid windfall profits;   • efficiency o...
Technology specific support• Technology specific support to avoid windfall profits for producers of mature  technologies• ...
Number of tariffs  Source: Jacobs 2012
Size specific tariff payment
Size specific tariffs• Tariff differentiation according to size    • Economies of scale    • Market entrance for small pro...
Location specific tariff payment
Location specific tariffs • Mostly applied for wind energy (Germany and France) • Reduce accumulation of wind power plants...
Location specific tariffs - Germany      Source: Klein et al. 2008
Location specific tariffs - Germany      Source: Klein et al. 2008
Location specific tariffs - Germany
Location specific tariffs• New French FIT for solar also includes location specific tariffs                               ...
Tariff degression
Tariff degression• Tariff degression (automatic, annual reduction); because of technological learning, economies of scale,...
Tariff evolution solar PV in Germany     8000                                                                             ...
Tariff degression• Tariff degression (automatic, annual reduction); because of technological learning, economies of scale,...
Tariff degression - Germany• Germany implemented tariff degression for all technologies• Tariff degression rates in German...
Inflation indexation
Inflation indexation• Feed-in tariff schemes guarantee tariff payment for a long period of time (15-25 years)• Indexation ...
Inflation indexation• Some European countries do not explicitly index tariffs (e.g. Germany)• However, these countries hav...
Demand oriented tariff payment
Demand-oriented tariff payment• Higher tariffs during peak demand• Lower tariff during off-peak periods• Should only apply...
Demand-oriented tariff payment     Source: Optres Final report 2007
Time-differentiated tariffs – hydro, France                                        No differentiation         6.07 €cent/k...
Assessment report
Assessment report and amendments • Frequently review the FIT scheme and amend it, if necessary      •   Germany and Spain:...
Assessment report and amendments• Assessment report should include:   • analysis of growth rates and average production co...
Conclusion
Advantages of Feed-in tariffs High level of investment security New actors are entering the power market (competition) PV ...
Disadvantages of Feed-in tariffs „uncontrolled“ market growth in case of tariffs that are too high (flexible degression) T...
Preview of session 4 – Case studies on feed-in tariffimplementation More detailed case studies from developed and developi...
Further reading Mendonça, M., Jacobs, D.; Sovacool, B. 2009b. Powering the green economy – The feed-in tariff handbook.Ear...
Further reading DB Climate Change Advisors 2009. Paying for renewable energy: TLC at the right price - Achieving scale thr...
Thank you for your attention!!!Dr. des. David Jacobs I Director Renewable EnergyIFOK GmbHReinhardtstraße 5810117 BerlinTel...
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Course on Regulation and Sustainable Energy in Developing Countries - Session 3

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This session is devoted to the design of feed-in tariff schemes for the large-scale dissemination of on-grid renewable energy technologies in developing countries. More than 50 countries have adopted a feed-in tariff both in developed and developing countries.

Designed carefully, feed-in tariff laws are considered to be one the most cost-effective measure to support renewable energy technologies. In the case of developing countries, there is a need to balance conflicting priorities, especially when it comes to national development objectives such as health, education, employment etc, whereby environmental issues can often be considered as secondary. Therefore the complementary benefits that renewables can bring and the cost of mechanisms to support renewable energy technologies needs to be weighed; renewable energy policies need to be linked to development policies.

After a brief introduction on the motivations to introduce renewable energy policies in developing countries, the session 3 examines the way to design and implement effective feed-in tariff: how to determine the eligible producer and technologies, how to calculated support levels, how to differentiate tariff payment, when to revise tariffs and plan tariff degression, etc.

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Course on Regulation and Sustainable Energy in Developing Countries - Session 3

  1. 1. Feed-in tariffs – diffusion, design consideration and implementation in developing countries Leonardo Webinar 12 January 2012 Dr. des. David Jacobs Director Renewable Energy, IFOK GmbHCourse on Regulation and Sustainable Energy in Developing Countries – Session 3www.leonardo-energy.org/course-regulation-and-sustainable-energy-developing- countries
  2. 2. Countries with renewable energy targets Countries without targets Countries with targets From 45 in 2005 to 85 in 2010
  3. 3. FIT Countries 1995 Countries with state FIT policy Countries with national FIT policy Source: REN21, Renewables 2010 Global Status Report 3
  4. 4. FIT Countries 2000 Countries with state FIT policy Countries with national FIT policy Source: REN21, Renewables 2010 Global Status Report 4
  5. 5. FIT Countries 2010 Countries with state FIT policy Countries with national FIT policy Source: REN21, Renewables 2010 Global Status Report 5
  6. 6. World-wide installed capacity by incentive type (%) Wind Solar Market Tendering Trade & based 1% Market quota 3% 9% based/off Tax -grid incentive 7% 6% Tax incentive 194GW 43GW 23% Feed-in tariff Feed-in 64% tariff 87% Source: Bloomberg New Energy Finance
  7. 7. FITs in Europe Countries with FiTs Source: Klein et al. 2010 • 23 of 27 EU countries have FITs • Feed-in tariffs in the EU have triggered considerable share of investment: • 100% PV • 86% wind • 68% biomass
  8. 8. Basic feed-in tariff design• Purchase obligation • “Independent” from power demand• Fixed tariff payment based on the actual power generation costs • Price setting will be discussed in session 4• Long duration of tariff payment
  9. 9. Tariff payment duration • Formerly: short periods (logic of conventional electricity sector) • Nowadays: long payment durations (usually 15-25 years ~ lifetime of power plant) • Necessary because of special investment structure
  10. 10. Eligible RE Sources/Technology• Definition of eligible producers (technologies?)• Assessment of resource availability• Start with a handful of technologies, for instance: Small Wind Biomass Solar PV hydropower  Plant size (maximum?)  Territory (offshore?)
  11. 11. Eligible RE Sources/TechnologyAssessment of other resource needed! Wind offshore? Tidal? Geothermal?
  12. 12. Number of eligible technologies Source: Jacobs 2012
  13. 13. More “advanced” FIT design• Advanced feed-in tariff design options are primarily for countries who have already supported renewable electricity technologies for a number of years• Advanced FIT design is taken into account by more and more developing countries• Objectives: • Reduce windfall profits through differentiated tariffs • Facilitate system integration
  14. 14. Pro and cons of tariff differentiation• Advantages of tariff differentiation: • Avoid windfall profits; • efficiency of system can be increased, • Additional costs for final consumer can be limited• Disadvantages of tariff differentiation: • High degree of complexity (reduced transparency) • Overall efficiency might be reduced (e.g. better to construct two small plant) → Increase complexity over time (e.g. Germany: 1990: 4§; 2000: 13§; 2004: 22§; 2009: 65§)
  15. 15. Technology specific support• Technology specific support to avoid windfall profits for producers of mature technologies• Size specific support Cost• Location specific support WP PFITC C PFITB PFITA B A MP Quantity Source: Jacobs 2005 Source: David Jacobs
  16. 16. Number of tariffs Source: Jacobs 2012
  17. 17. Size specific tariff payment
  18. 18. Size specific tariffs• Tariff differentiation according to size • Economies of scale • Market entrance for small producers • According to typical installation sizes, e.g. 0 kW < Tariff/Price ≤ 30 kW 30 kW < Tariff/Price ≤ 100 kW 100 kW < Tariff/Price < 2 MW 2 MW and above
  19. 19. Location specific tariff payment
  20. 20. Location specific tariffs • Mostly applied for wind energy (Germany and France) • Reduce accumulation of wind power plants in coastal areas (increases public acceptance); visual impact • Location specific tariffs in Germany depend on wind speed at a given location (measured during the first 10 years of operation) • First 10 years: flat rate • Final 5 years: depending on “quality” of site
  21. 21. Location specific tariffs - Germany Source: Klein et al. 2008
  22. 22. Location specific tariffs - Germany Source: Klein et al. 2008
  23. 23. Location specific tariffs - Germany
  24. 24. Location specific tariffs• New French FIT for solar also includes location specific tariffs Source: http://re.jrc.ec.europa.eu/pvgis/countries/europe.htm
  25. 25. Tariff degression
  26. 26. Tariff degression• Tariff degression (automatic, annual reduction); because of technological learning, economies of scale, rationalization, innovation pressure• Effects only new capacity, i.e. tariff for “old” plants remains stable over long period of time• Most countries only use it for solar PV (Italy, Spain) Source: Klein et al. 2008
  27. 27. Tariff evolution solar PV in Germany 8000 0.70 7,407 0.62 7000 0.60 0.60 0.56 6000 0.53 0.52 0.51 0.50 0.48 0.46 0.46 5000 0.43 0.43 0.41 0.40 0.39 0.38 Added MW 4000 0.35 3,806 Upper Bound 0.32 Lower Bound 0.30 3000 0.24 0.20 2000 1,809 1,271 951 0.10 1000 843 670 110 110 139 0 0.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Fulton et al. 2011
  28. 28. Tariff degression• Tariff degression (automatic, annual reduction); because of technological learning, economies of scale, rationalization, innovation pressure Source: MBIPV 2010
  29. 29. Tariff degression - Germany• Germany implemented tariff degression for all technologies• Tariff degression rates in Germany (2009)Renewable energy technology Annual degression rateHydropower (more than 5 MW) 1 percentLandfill gas 1.5 percentSewage treatment gas 1.5 percentMine gas 1.5 percentBiomass 1 percentGeothermal 1 percentWind power offshore 5 percent (from 2015 onwards)Wind power onshore 1 percentSolar PV 8-10 percent
  30. 30. Inflation indexation
  31. 31. Inflation indexation• Feed-in tariff schemes guarantee tariff payment for a long period of time (15-25 years)• Indexation applies to existing and new power plants!• Full or partial indexation (Spain)• Indexation to other economic indicators (France: cost of labor)
  32. 32. Inflation indexation• Some European countries do not explicitly index tariffs (e.g. Germany)• However, these countries have relatively modest and predictable price increased which can be taken into account when calculating feed-in tariffs• In the case of countries with high inflation rated, tariff payment for existing plants should be inflation indexed
  33. 33. Demand oriented tariff payment
  34. 34. Demand-oriented tariff payment• Higher tariffs during peak demand• Lower tariff during off-peak periods• Should only apply to “non-fluctuating” technologies (e.g. not wind and solar)• Differentiation: day or time of year
  35. 35. Demand-oriented tariff payment Source: Optres Final report 2007
  36. 36. Time-differentiated tariffs – hydro, France No differentiation 6.07 €cent/kWh Single-component tariff Two-component tariff Summer 8.38 €cent/kWh Winter 4.43 €cent/kWh Four-component tariff Winter, normal demand 10.19 €cent/kWh Winter, off-peak demand 5.95 €cent/kWh Summer, normal demand 4.55 €cent/kWh Summer, off-peak demand 4.25 €cent/kWh Five-component tariff Winter, peak demand 17.72 €cent/kWh Winter, normal demand 8.92 €cent/kWh Winter, off-peak demand 5.95 €cent/kWh Summer, normal demand 4.55 €cent/kWh Summer, off-peak demand 4.25 €cent/kWh Source: Author based on J.O. (2007a)
  37. 37. Assessment report
  38. 38. Assessment report and amendments • Frequently review the FIT scheme and amend it, if necessary • Germany and Spain: Review every 3 or 4 years • New FIT countries: 1 or 2 years after first implementation, from there on every four yearsSource: Meister Consultants Group, DBCCA Analysis, 2011.
  39. 39. Assessment report and amendments• Assessment report should include: • analysis of growth rates and average production costs of the eligible technologies • progress towards the achievement of targets • economic, social and environmental benefits of the law (such as the amount of investment and export trade, the number of jobs created and the amount of carbon dioxide emissions avoided) • additional costs for the consumer Source: David Jacobs
  40. 40. Conclusion
  41. 41. Advantages of Feed-in tariffs High level of investment security New actors are entering the power market (competition) PV price reduction and innovation triggered by degressive feed-in tariffs > Investments are not postponed Allows for technology specific support Source: David Jacobs
  42. 42. Disadvantages of Feed-in tariffs „uncontrolled“ market growth in case of tariffs that are too high (flexible degression) The costs are growing continuously until the payment period of the first plants ends Difficulty to anticipate technological development (progress reports and monitoring necessary) Source: David Jacobs
  43. 43. Preview of session 4 – Case studies on feed-in tariffimplementation More detailed case studies from developed and developing countries (implementation steps, effectiveness and efficiency, critical path issues, etc). Assessment of costs related to feed-in tariff mechanisms and design for cost control Assessment of tariff calculation methodologies (how to get the tariff level right)
  44. 44. Further reading Mendonça, M., Jacobs, D.; Sovacool, B. 2009b. Powering the green economy – The feed-in tariff handbook.Earthscan: London. http://www.earthscan.co.uk/?tabid=92822 Klein, A., Pfluger, B., Held, A., Ragwitz, M., Resch, G., Faber, T. 2008. Evaluation of different feed-in tariff design options – Best practise paper for the international Feed-in Cooperation, Second edition, October 2008. Available from http://www.feed-in-cooperation.org/images/files/best_practice_paper_2nd_edition_final.pdf Couture, T., Cory, K., Kreycik, C., Williams, E., 2010. Policymakers’ Guide to Feed-in Tariff Policy Design. NREL, Technical Report, July 2010. Golden (CO): National Renewable Energy Laboratory. http://www.nrel.gov/docs/fy10osti/44849.pdf
  45. 45. Further reading DB Climate Change Advisors 2009. Paying for renewable energy: TLC at the right price - Achieving scale through efficient policy design. New York, NY: The Deutsche Bank Group. http://www.dbcca.com/dbcca/EN/investment_research.jsp EU Commission 2008a.The support of electricity from renewable energy sources, Commission staff working document, accompanying document to the proposal for directive of the European Parliament and of the Council on the promotion of the use energy from renewable sources, SEC(2008) 57, 23 January 2008, Brussels. http://ec.europa.eu/energy/climate_actions/doc/2008_res_working_document_en.pdf Jacobs, D. and Kiene A. 2009. Renewable energy policies for sustainable African development, World Future Council, April 2009. http://www.worldfuturecouncil.org/fileadmin/user_upload/PDF/World_Future_Council_Renewable_Energy_Polic y_Africa_June09.pdf
  46. 46. Thank you for your attention!!!Dr. des. David Jacobs I Director Renewable EnergyIFOK GmbHReinhardtstraße 5810117 BerlinTel.: +49 30 536077-27E-Mail: david.jacobs@ifok.dewww.ifok.de© 2010, IFOK GmbHIFOK behält sich alle Urheber-, Marken-, Leistungsschutz- sowie sonstigen Rechte an den Inhalten der Präsentation vor. Ohne schriftlicheEinwilligung durch IFOK dürfen diese Inhalte oder Teile davon weder bearbeitet oder verwertet noch Dritten zugänglich gemacht werden.TitelSeite 46

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