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.

Boost for RE in India

India's Central Electricity Regulatory Commission (CERC) in New Delhi recently announced new regulations launching a system of feed-in tariffs for renewable energy, including both wind and solar energy. The National Action Plan on Climate Change calls for five percent of electricity generation in India to be from renewable sources by 2010 and to increase one percent per year for the next ten years.

It is not clear whether CERC will set specific tariffs or whether each project would apply for tariffs individually. Usually, feed-in tariffs are specified for each technology or application.

CERC specifies the tariffs before tax which is unlike the practice in the US, where federal tax subsidies play an important part in project finance. CERC’s "normative return on equity" used in the calculations of 19 percent pre-tax during the first 10 years, and 24% after 10 years is comparable to the method used in Europe.
CERC also said that developers can approach the commission for project-specific tariffs as well as take the posted tariffs.

The new regulations spell out what assumptions need to be made to calculate the tariffs. For example, the regulations say that the discount rate used in determining the tariff will be the average weighted cost of capital. Further, the tariffs, defined as the levelized cost of energy, are derived from the specific "useful life" of each technology.

As successfully used in Germany and France and now proposed in China, India's new regulations will vary the tariff for wind energy based on resource intensity.
There is scope for discussions on the regulation with CERC inviting comments on its website. So folks, here is your chance to speak out!

Time for Shastang Surya Namaskar

Guess who said this: ‘We should not give in to those who say environment goals should take a back seat till economy improves… that would be short-sighted.’

That was California governor Arnold Schwarzenegger, addressing a solar energy conference. Under his leadership, the state has been leading in green initiatives. The above quote was at a time the US markets were at the peak of their fall.

Such conviction is as much a booster to the renewable energy sector as the recent tax incentive legislation that was made a law. The extension of tax credits in the US has seen maximum advantage to the solar sector with eight years while wind, hydro, etc got between 1-2 years. Tax credits can cover around 30 percent of project costs for solar. Homeowners in the US with solar PVs installed also can avail 30 percent tax credit.

The whole exercise amounts to $18 billion which is to be paid by closing tax loopholes for oil and gas industry.

India has also announced a number of incentives like subsidy, soft loan, 80 percent accelerated depreciation, confessional duty on import of raw materials and certain products, excise duty exemption on certain devices/systems etc. for the production and use of solar energy systems. The Indian Renewable Energy Development Agency provides revolving fund to financing and leasing companies offering affordable credit for purchase of PV systems.

India’s National Action Plan on Climate Change (NAPCC) is likely to become a significant driver of new investment opportunities in the country’s renewable energy portfolio, and in solar generation in particular. Its national Solar Mission to be ready this year end will chart the route for boosting solar PV production by 1000 MW annually by 2017, and another 1000 MW from CSP by the same period.

A generation based incentive has been offered for solar since this year. The generator claims subsidies based on the power it supplies to the grid. A financial assistance of Rs 12 per kilowatt hour in case of solar photovoltaic and Rs 10 per kilowatt hour in case of solar thermal power is being given by the MNRE. Financial incentives for the semiconductor industry is also expected to aid the solar sector.

But doubts still persist.

For the capital intensive sector that it is, linking subsidies to performance could deter investors. But making it capital based would mean that higher the capital, more the subsidy and hence there is no effort to keep costs down. That has been the evidence due to which the new generation based subsidy is being tried out. It had also been seen that high thresholds for capital subsidies meant few players could enter the arena.

Low interest long-term finance is what many seek. Others believe interest subsidies along with generation subsidies will be a sure recipe for wooing many.

It is calculated that India receives 5000 trillion kilowatt-hours of solar energy annually, and that even 1 percent of this harnessed could meet all the energy demands required in 2030! What stops us then?

In an industry that has focused on manufacture and exports instead of adoption, lack of infrastructure has been a big deterrent. Evacuation networks or networks that carry the power generated into the grid need to be put in place. At present hardly 2 MW of solar power is grid-linked.

Perhaps as manufacturing that caters to growing domestic demand picks up (with many companies like Signet Solar, Tata BP Solar, Moser Baer, investing thousands of crores into their plants,) costs will come down. But what many advocate is a feed-in tariff, where an assured and high rate, is fixed for power fed into the grid. That is believed to have been behind the success of solar in Germany where rates three and four times that of market rate was offered. It hardly meant a 2 percent rise in bills for customers.

Any reason why India should not opt for this? Besides the fact that UK still believes it is too 'interventionist' and prefers to go by RPOs. Lol! we still look up there for guidance, right?