The Spread of Feed-in Tariffs: Lessons Learned

Transcription

1 The Spread of Feed-in Tariffs: Lessons Learned Prepared by: Christina Hanley, Meister Consultants Group 1

2 The Presentation Outline A. Diffusion of Feed-in Tariffs Worldwide B. Feed-in Tariff Design in Developing Countries C. Latin America: Lessons Learned 2

3 Defining Feed-in Tariffs (FITs) Feed-in tariffs are long-term, guaranteed purchase agreements for green electricity at a price that can provide project developers a reasonable return on investment. Most prevalent national RE policy worldwide Driven a significant proportion of global RE capacity during past decade FITs supported: 75% of global PV capacity and 45% of global wind capacity through

4 FITs: Popular with investors for its consistent policy framework to mobilize capital at fair cost Investors essentially look for 3 key policy drivers: DB Climate Change Advisors has concluded that feed-in tariffs can efficiently deliver TLC at the right price, and can be adapted to the developing world context. Source: DBCCA Analysis,

5 FIT Countries 1990 Countries with state FIT policy Countries with FIT policy Source: REN21, Renewables 2010 Global Status Report 5

6 FIT Countries 1995 Countries with state FIT policy Countries with FIT policy Source: REN21, Renewables 2010 Global Status Report 6

7 FIT Countries 2000 Countries with state FIT policy Countries with FIT policy Source: REN21, Renewables 2010 Global Status Report 7

8 FIT Countries 2005 Countries with state FIT policy Countries with FIT policy Source: REN21, Renewables 2010 Global Status Report 8

9 FIT Countries 2010 Countries with state FIT policy Countries with FIT policy Source: REN21, Renewables 2010 Global Status Report 9

10 The Presentation Outline A. Diffusion of Feed-in Tariffs Worldwide B. Feed-in Tariff Design in Developing Countries C. Latin America: Lessons Learned 10

11 Low-risk feed-in tariff design features (slide 1 of 2) Design issue Options Low-risk option Eligibility All generator types eligible Eligibility restricted to specific technologies, sizes, ownership types, etc. Interconnection and purchase requirements Guaranteed interconnection Priority interconnection Guaranteed purchase Priority dispatch Contracts No contracts Standard contracts Contracts negotiated on a case-by-case basis Contract length Short-term (1-7yrs) Medium-term (8-14yrs) Long-term (15-20yrs) Rate setting basis Generation cost-based Value-based (e.g. avoided costs) Payment structure Fixed price schedule Premium payment Spot market gap payment Tariff differentiation Differentiated Undifferentiated N/A All, where applicable Standard contracts Long-term, matched to service life to extent possible Generation cost based Fixed price schedule N/A Source: MCG Research,

12 Low-risk feed-in tariff design features (slide 2 of 2) Design issue Options Low-risk option Purchasing entity Utility Transmission system operator Government entity Commodities purchased Electricity RECs Emissions credits Capacity Amount purchased 100% Partial purchase (e.g. only net excess) Adjusting the payment Periodic review Automatic adjustment after set period of time Automatic adjustment triggered by capacity Adjustment based on prior market performance Caps and queuing Cap on capacity Cap on generation Cap on ratepayer impact Creditworthy counterparty Commodities bundled and purchased for a reasonable rate of return 100% Transparent, scheduled, and clearly defined adjustment mechanism No cap preferable. If cap in place, it should be transparent, clearly defined, and stable, with clear queuing procedures Source: MCG Research,

13 Alert: Low-risk model can t be applied as a template everywhere! Different challenges faced by developing economies Groundwork to lay effective FIT policies Need for tailored policies that incorporate low-risk features where possible 13

14 Conditions external to FITs may constrain success Potential Constraints Regulatory Factors Economic Factors Considerations Competing policy priorities Regulatory capacity Existence of a renewable energy framework Currency stability and devaluation Inflation Per capita GDP Local banking capacity Credit Factors Creditworthy counterparty Energy Costs Fossil fuel subsidies 14

15 Electricity market & grid conditions may prevent designing FIT to low-risk ideal Potential Constraints Electricity Market Considerations Market structure Role of Independent Power Producers Wholesale electricity competition Use of long-term contracts in the marketplace Utility cooperation Grid Design Grid capacity Electricity access Intermittency Grid integration Queuing Curtailment 15

16 The Presentation Outline A. Diffusion of Feed-in Tariffs Worldwide B. Feed-in Tariff Design in Developing Countries C. Latin America: Lessons Learned 16

17 Drivers for renewable energy in the Caribbean and Latin America are similar to those in Africa Growing electricity demand Aging infrastructure High fossil fuel dependence Oil price volatility Energy security Energy poverty alleviation Climate change adaptation/mitigation Real and potential climate finance resources Carbon emission reduction goals Policies to drive renewable energy investment and deployment Source: ECLAC & IDB,

18 Limited renewable energy development through feed-in tariffs in Latin America Feed-in tariffs are in: Argentina, Brazil (expired), Dominican Rep., Ecuador, Honduras and Nicaragua Policy successes and low risk design examples: Wide range of eligible technologies Most guarantee a tariff payment over a long time period (10-30 years) Many include special provisions for interconnection and purchase requirements Mixture of fixed and premium payment structures used 18

19 Argentina s FIT: Rates are too low Key divergences from low-risk design: Differentiated payments but not generation cost-based Uses a premium on top of wholesale electricity price instead of fixed price No standard contracting. Parallel auction mechanism ( Genren ) delivers higher prices 19

20 Ecuador s FIT: Low investment security FIT is a resolution not a decree or law Low national credit rating No purchase obligation for renewables Renewable energy cap already filled Unclear rate-setting basis Risks of re-nationalization parts of electricity industry 20

21 Lessons to Learn from Latin America Opportunities for improvements: Tailor policies to be more low risk and targeted toward renewable energy development Transition from avoided cost to generation based rate setting Design standard interconnection procedures Determine standard contracts for power purchase agreements 21

22 Recommendations for African countries considering feed-in tariffs Set Clear Policy Objectives Power purchase agreements (PPAs) Long-term contract Develop interconnection procedures Technical Assistance Evaluate needs for local capacity building Collaborate with development agencies and experts Creating a FIT & Supporting Framework Gain Experience in Renewable Energy Lighthouse PPAs could be a learning tool Tailor to Local Context Consider internal & external constraints in FIT policy design Adapt low-risk design features where possible 22

23 Contact Christina Hanley Meister Consultants Group, Inc. 98 N. Washington Street Boston, MA T Christina.hanley@mc-group.com 23

24 Feed-in tariffs are in ~54 countries; designs and impact vary widely European Union Austria Latvia Bulgaria Lithuania Cyprus Luxembourg Czech Rep. Malta Denmark Netherlands Estonia Portugal France Slovak Rep. Finland Slovenia Germany Spain Greece UK Hungary Ireland Italy Non-EU Europe and Middle East Croatia Israel Macedonia Serbia Switzerland Turkey Ukraine Africa Americas Asia and Australasia Algeria Kenya Mauritius South Africa Tanzania Uganda Argentina Canada* Ecuador Nicaragua United States* Dominican Rep. Honduras Peru Australia* China India* Mongolia Pakistan Philippines South Korea Sri Lanka Taiwan Thailand Note: In countries marked with a (*), feed-in tariffs have been implemented at regional level. Source: Sawin and Martinot, 2010; MCG Research,

25 Feed-in tariffs share characteristics with other renewable energy policy types Design FiTs Rebates Incentive type Incentive based on Revenue Investment Tax Credits Production Competitive tenders Tradable RECs Cash Cash Tax Tax Cash Cash Performance Long-term, fixed Investment or capacity Upfront, fixed Investment Performance Performance Performance Upfront, fixed Long-term, fixed Contract? Standard None None None Process for setting incentive level Commodities purchased Long-term, fixed Standard or negotiated Long-term, variable None Administrative Administrative Administrative Administrative Bidding Market Bundled None * None None Bundled Unbundled, sold separately *Note: Grants and rebates are not typically provided in exchange for electricity generation. In some countries and states, however, the rights to generation attributes (e.g. RECs and/or carbon credits) transfer from the generator to the provider of the rebate or grant. 25