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.

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 GmbH
Course on Regulation and Sustainable Energy in Developing Countries – Session 3
www.leonardo-energy.org/course-regulation-and-sustainable-energy-developing-
countries

2. Countries with renewable energy targets
Countries without targets
Countries with targets
From 45 in 2005 to 85 in 2010

3. FIT Countries 1995
Countries with state FIT policy
Countries with national FIT policy
Source: REN21, Renewables 2010 Global Status Report
3

4. FIT Countries 2000
Countries with state FIT policy
Countries with national FIT policy
Source: REN21, Renewables 2010 Global Status Report
4

5. FIT Countries 2010
Countries with state FIT policy
Countries with national FIT policy
Source: REN21, Renewables 2010 Global Status Report
5

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. 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. 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. 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. 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. Eligible RE Sources/Technology
Assessment of other resource needed!
Wind offshore? Tidal? Geothermal?

12. Number of eligible technologies
Source: Jacobs 2012

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. 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. 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. Number of tariffs
Source: Jacobs 2012

17. Size specific tariff payment

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. Location specific tariff payment

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. Location specific tariffs - Germany
Source: Klein et al. 2008

22. Location specific tariffs - Germany
Source: Klein et al. 2008

23. Location specific tariffs - Germany

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. Tariff degression

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. 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. Tariff degression
• Tariff degression (automatic, annual reduction); because of
technological learning, economies of scale, rationalization, innovation
pressure
Source: MBIPV 2010

29. Tariff degression - Germany
• Germany implemented tariff degression for all technologies
• Tariff degression rates in Germany (2009)
Renewable energy technology Annual degression rate
Hydropower (more than 5 MW) 1 percent
Landfill gas 1.5 percent
Sewage treatment gas 1.5 percent
Mine gas 1.5 percent
Biomass 1 percent
Geothermal 1 percent
Wind power offshore 5 percent (from 2015 onwards)
Wind power onshore 1 percent
Solar PV 8-10 percent

30. Inflation indexation

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. 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. Demand oriented tariff payment

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. Demand-oriented tariff payment
Source: Optres Final report 2007

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. Assessment report

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 years
Source: Meister Consultants Group, DBCCA Analysis, 2011.

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. Conclusion

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. 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. Preview of session 4 – Case studies on feed-in tariff
implementation
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. 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. 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. Thank you for your attention!!!
Dr. des. David Jacobs I Director Renewable Energy
IFOK GmbH
Reinhardtstraße 58
10117 Berlin
Tel.: +49 30 536077-27
E-Mail: david.jacobs@ifok.de
www.ifok.de
© 2010, IFOK GmbH
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