Tuesday, October 9, 2012

FITs best

The quota model for renewable energy does not work as well as feed-in tariff models. In a report recently published by Germany’s Agentur für Erneuerbare Energien (Renewable Energy Agency), the feed-in tariff system was shown to deliver a lower cost to consumers than quota systems.

The majority of the EU’s member states use some sort of feed-in tariff system, in which investments are made into renewable energy according to the cost of producing the energy. As time goes on, often the investments are reduced to encourage lower production costs over time.

The rest use a quota system, known in the United States as Renewable Portfolio Standards or Renewable Energy Standards. Here, the prices end users pay for wind energy is consistently and considerably higher than the prices paid in member states with feed-in tariffs. This runs counter to the idea that quota systems are supposed to reward cheap tech and deliver the lowest-cost electricity possible to consumers.

Germany is a model of the feed-in tariff system, having embraced wind energy to the tune of 29,000 MW. A large portion of its wind capacity is located in less than ideal locations — mainly, in mid-Germany. And yet, according to the Renewable Energy Agency, Germans pay €0.089/kWh for wind energy. Compare the United Kingdom, which has much greater wind-producing potential but also a quota system. It would seem easier to produce electricity via wind and therefore lower production costs, leading to lower prices. That would be wrong. Consumers there pay €0.108/kWh.

Feed in tariffs are not without their drawbacks but are still the best bet for encouraging investment in renewables.

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