The Future of Feed-In Tariffs
6 October 2014
The Clean Energy Solutions Center, in partnership with E3 Analytics, hosted this webinar on the future of renewable energy feed-in tariffs.
Over the last few years, many commentators have argued that after having helped kick-start many of the world’s leading renewable energy markets, feed-in tariffs (FITs) are now on the decline around the world. Their reputed success at creating Transparency, Longevity and Certainty (TLC), in Deutsche Bank’s memorable phrase, has been severely undermined by the experience of jurisdictions such as Spain, where spiraling costs and inadequate controls on market growth have led to a major boom followed by a major bust. Even in their core markets such as Germany, FITs seem to be losing ground as concerns over electricity costs and the desire of regulators to expose renewable energy technologies to price signals now dominate the discussion.
Criticisms of FITs are now widespread and policymakers in both developed and developing countries have been forced to re-evaluate their options. The criticisms center around three key points:
- First, it is argued that FIT payments have been unsustainably high and have often failed to accurately track rapidly changing technology costs, particularly in solar PV. This has resulted in excess profits for investors, and an unsustainable burden on ratepayers. These excess profits could have been avoided, critics argue, if regulators had allowed market competition to determine prices, such as through competitive tenders.
- Second, many have argued that FITs have lacked adequate controls on market growth, fueling boom and bust cycles in markets like Spain, the Czech Republic, and in Germany.
- Third, it has been argued that FITs are fundamentally incompatible with competitive electricity markets. In this view, guaranteed long-term contracts such as FITs will eventually need to give way to electricity markets driven largely (if not exclusively) by wholesale spot market prices. This will ensure competition between technologies, and generate a more efficient (i.e. welfare maximizing) outcome for society as a whole.
At the heart of these various criticisms is the view that FITs are on the decline — while they may have been useful in the early stages of the renewable energy industry, as renewable energy technologies become more mature and their share in the overall electricity mix grows, FITs will gradually need to be phased out.
This webinar attempted to provide a global perspective on the future of feed-in tariffs by evaluating these arguments in more detail. The webinar reflected on what these changes could mean for the renewable energy industry and on what implications it could have for sustaining the flow of finance to the sector worldwide.
Toby Couture is Founder and Director of E3 Analytics, an international renewable energy consultancy based in Berlin, Germany. He works on a wide range of topics in renewable energy including policy and regulatory analysis, market research, strategy consulting, and finance. In 2010, Toby was the lead author of an influential global report on feed-in tariffs prepared for the National Renewable Energy Laboratory, A Policymaker’s Guide to Feed-in Tariff Policy Design. Since then, policymakers and regulators from around the world have used the report widely to design and implement their own renewable energy policies. Now almost five years later, he reflects on the changes that have taken place in renewable energy policy globally, and attempts to provide perspective on the future of FITs in the context of a rapidly changing renewable energy industry. Toby is a previous recipient of the Fulbright Scholarship, has studied renewable energy finance in France and has a Master’s degree in Environmental Policy from the University of Moncton in Canada, as well as an MSc. in Financial and Commercial Regulation from the London School of Economics in the UK. He currently lives in Berlin.