An integrated assessment of the feed-in tariff system in Spain

Given the relative socioeconomic and environmental benefits linked to the deployment of electricity from renewable energy sources (RES-E), its public promotion has been a priority on the agendas of governments in virtually all European countries. The Spanish government has not been an exception in this regard. Public support at the national level has been based on a feed-in tariff (FIT) scheme, which has had its pros and cons in the encouragement of effective and cost-effective deployment of RES-E. Based on different information sources and empirical data, this paper provides an integrated assessment of the system in the period of influence of the Royal Decree 2818/1998 (i.e., between 1999 and 2003), according to different criteria. The strong and weak points of the system are assessed. The paper suggests that some of its elements should be redesigned.     

Efficiency and effectiveness of promotion systems for electricity generation from renewable energy sources - Lessons from EU countries

Currently, a wide range of strategies is implemented in different countries to increase the share of electricity from renewable energy sources (RES-E). A still controversial discussion is whether quantity-driven (like Tradable Green Certificates (TGCs) based on quotas) or price-driven (like feed-in-tariffs (FIT)) instruments lead to preferable solutions for society. The core objective of this paper is to compare the perspectives of quota-based certificate trading systems for an efficient and effective increase of RES-E with FIT. The major results of this analysis are: (i) The success stories of growth in RES-E in EU member states in recent years has been triggered by FIT implemented in a technology-specific manner at modest costs for European citizens; (ii) At present, TGC systems in most countries applied show a low effectiveness with respect to RES-E deployment of less mature technologies such as solar PV (with improving tendencies in e.g. the UK or Italy with respect to certain technologies); (iii) Compared to short term trading in TGC markets the intrinsic stability of FIT systems appears to be a key element for success; (iv) Hence, currently a well-designed (dynamic) FIT system provides a certain deployment of RES-E in the shortest time and at lowest costs for society.     

Assessing the strength and effectiveness of renewable electricity feed-in tariffs in European Union countries

In the last two decades, feed-in tariffs (FIT) have emerged as one of the most popular policies for supporting renewable electricity (RES-E) generation. A few studies have assessed the effectiveness of RES-E policies, but most ignore policy design features and market characteristics (e.g. electricity price and production cost) that influence policy strength. We employ 1992–2008 panel data to conduct the first econometric analysis of the effectiveness of FIT policies in promoting solar photovoltaic (PV) and onshore wind power development in 26 European Union countries. We develop a new indicator for FIT strength that captures variability in tariff size, contract duration, digression rate, and electricity price and production cost to estimate the resulting return on investment. We regress this indicator on added RES-E capacity using a fixed effects specification and find that FIT policies have driven solar PV development in the EU. However, this effect is overstated without controlling for country characteristics and is concealed without accounting for policy design. We do not find robust evidence that FIT policies have driven wind power development. Overall, we show that the interaction of policy design, electricity price, and electricity production cost is a more important determinant of RES-E development than policy enactment alone.     

The public promotion of wind energy in Spain from the transaction costs perspective 1986–2007

This paper analyzes the success of wind energy in Spain from 1986 to 2007. Certain special characteristics have emerged in Spain that provide credibility to the feed-in tariff (FIT) device to promote this energy source. To explain this success, the analysis will focus on the intrinsic characteristics of FIT using the concepts of the transaction cost theory (TCE). Nevertheless, in this framework, special attention is placed on the role that specific political and institutional factors have played in providing stability to this instrument. Thanks to an early start and an on-going and generous FIT device, wind energy promotion for electricity has become a political success story in Spain. The main implication of this analysis is that this success is mainly due to the trade-off between stability and flexibility in the use of Spanish FIT.     

A European-wide harmonised tradable green certificate scheme for renewable electricity: is it really so beneficial?

Winds of change are blowing in the public promotion of renewable electricity (RES-E) in Europe. On the one hand, a move to allegedly more market-conform instruments for the promotion of RES-E has already taken place in some Member States. On the other hand, a Directive on the promotion of RES-E has recently been approved setting indicative targets for RES-E consumption and opening the possibility that a harmonised framework for support schemes will be implemented in Europe. This harmonised framework (in combination with trade in RES-E between Member States) can be compared to a situation in which Member States continue to apply their current support schemes. This paper analyses the pros and cons of harmonisation. The main conclusion is that if priority is given to the local/regional/national benefits of RES-E, then harmonisation in combination with a tradable green certificate scheme is not so advantageous for countries. Only if the policy priority is the achievement of the RES-E Directive targets at the minimum costs should harmonisation be favoured by national energy authorities.     

Fixed feed-in tariff versus premium: A review of the current Spanish system

Since 1998 the Spanish Government established a feed-in system where RES-E generators could choose between two alternatives: fixed feed-in tariff and premium. Nowadays, all RES-E¹ can be sold in the electricity market (getting an additional premium) except for solar photovoltaic. One important novelty established in 2007 is a cap and floor system for facilities under the premium option. The aim of this paper is to analyze and compare these two alternative options, fixed-FIT and premiums, which coexist at the same time in Spain, describe the evolution of both systems and evaluate its performance. The introduction of this support system in Spain led to very good results in terms of RES-E deployment. The main advantage of the premium option is that it is a scheme integrated in the electricity market. One disadvantage is that it can occasionally lead to overcompensation; one way to try to avoid it is to set a cap value. In order to evaluate the performance of this dual support system not only RES-E deployment has been assessed but also the policy stability, the adequacy of RES-E production to the electricity demand pattern and the changes in the investors’ behaviour.     

A hybrid model for the optimum integration of renewable technologies in power generation systems

The main purpose of this work is to assess the unavoidable increase in the cost of electricity of a generation system by the integration of the necessary renewable energy sources for power generation (RES-E) technologies in order for the European Union Member States to achieve their national RES energy target. The optimization model developed uses a genetic algorithm (GA) technique for the calculation of both the additional cost of electricity due to the penetration of RES-E technologies as well as the required RES-E levy in the electricity bills in order to fund this RES-E penetration. Also, the procedure enables the estimation of the optimum feed-in-tariff to be offered to future RES-E systems. Also, the overall cost increase in the electricity sector for the promotion of RES-E technologies, for the period 2010–2020, is analyzed taking into account factors, such as, the fuel avoidance cost, the carbon dioxide emissions avoidance cost, the conventional power system increased operation cost, etc. The overall results indicate that in the case of RES-E investments with internal rate of return (IRR) of 10% the cost of integration is higher, compared to RES-E investments with no profit, (i.e., IRR at 0%) by 0.3–0.5 €c/kWh (in real prices), depending on the RES-E penetration level.     

Analysing the impact of renewable electricity support schemes on power prices: The case of wind electricity in Spain

It is sometimes argued that renewables are “expensive”. However, although it is generally true that the private costs of renewable electricity generation are certainly above those of conventional electricity, that statement fails to consider the social benefits provided by electricity from renewable energy sources (RES-E), including environmental and socioeconomic ones. This paper empirically analyses an additional albeit usually neglected benefit: the reduction in the wholesale price of electricity as a result of more RES-E generation being fed into the grid. The case of wind generation in Spain shows that this reduction is greater than the increase in the costs for the consumers arising from the RES-E support scheme (the feed-in tariffs), which are charged to the final consumer. Therefore, a net reduction in the retail electricity price results, which is positive from a consumer point of view. This provides an additional argument for RES-E support and contradicts one of the usual arguments against RES-E deployment: the excessive burden on the consumer.     

The implications of the Kyoto project mechanisms for the deployment of renewable electricity in Europe

EU energy/environmental policy has at least two major and interrelated goals: to increase the percentage of electricity from renewable energy sources (RES-E) and to control the emission of GHG cost efficiently. These two goals could be in conflict. This paper explores one aspect of this conflicting relationship, namely the effect that the use of the Kyoto Protocol project mechanisms (CDM/JI project) may have on the deployment of RES-E within EU borders.The main conclusion is that, under certain assumptions (i.e., no mandatory EU RES-E quota), CDM/JI projects might reduce the incentive to deploy RES-E within EU borders because they would allow European power companies to comply with GHG targets in a cheaper way than if they reduced emissions by investing in renewable electricity in Europe. This is problematic, since many benefits from renewable electricity are local and these would be gone. This situation would be different if a mandatory RES-E quota (combined with an EU-wide TGC scheme) was implemented. In this case, the RES-E target would be fulfilled and CDM/JI projects would only affect RES-E deployment exceeding the target.     

Pros and cons of exposing renewables to electricity market risks—A comparison of the market integration approaches in Germany,Spain, and the UK

The article examines how renewable electricity (RES-E) producers are integrated into the electricity market under the support legislations and regulatory frameworks of Germany, Spain, and the UK. Focus is on wind power, which faces the highest market integration challenge of all RES-E. The analysis shows that the three countries follow contrasting approaches of exposing RES-E producers to the market risks of forward electricity markets, balancing markets and system planning requirements. Risk exposure is highest in the UK and lowest in Germany. From a policy maker's perspective, there is a trade-off between a “high risk” and a “low risk” approach. When RES-E face high market risks, a higher level of financial support is required to stimulate RES-E development than in a low risk environment, but the exposure to market risks may also give an incentive to make efficient use of the respective market, thus limiting the indirect costs to society. The special characteristics of wind energy, however, put natural limits to the response of wind power plants to market prices and locational price signals and will increasingly influence electricity markets and grid infrastructure. These interdependencies should be recognised in the design of RES-E policies and market regulations.     

Economic modelling of price support mechanisms for renewable energy: Case study on Ireland

The Irish Government is considering its future targets, policy and programmes for renewable energy for the period beyond 2005. This follows a review in 2003 of policy options that identified a number of different measures to stimulate increased deployment of renewable energy generation capacity. This paper expands this review with an economic analysis of renewable energy price support mechanisms in the Irish electricity generation sector. The focus is on three primary price support mechanisms quota obligations, feed in tariffs and competitive tender schemes. The Green-X computer model is utilised to characterise the RES-E potential and costs in Ireland up until, and including, 2020. The results from this dynamic software tool are used to compare the different support mechanisms in terms of total costs to society and the average premium costs relative to the market price for electricity. The results indicate that in achieving a 20% RES-E proportion of gross electricity consumption by 2020, a tender scheme provides the least costs to society over the period 2006–2020 but only in case there is limited or no strategic bidding. Considering, however, strategic bidding, a feed-in tariff can be the more efficient solution. Between the other two support mechanisms, the total costs to society are highest for feed-in-tariffs (FIT) until 2013, at which point the costs for the quota system begin to rise rapidly and overtake FIT in 2014–2020. The paper also provides a sensitivity analysis of the support mechanism calculations by varying default parameters such as the interim (2010) target, the assumed investment risk levels and the amount of biomass co-firing. This analysis shows that a 2010 target of 15% rather than 13.2% generates lower costs for society over the whole period 2006–2020, but higher costs for the RES-E strategy over the period 2006–2010.     

How to deal with negative power price spikes?—Flexible voluntary curtailment agreements for large-scale integration of wind

For the large-scale integration of electricity from renewable energy sources (RES-E), the German system seems to reach its limits. In 2009, the electricity wholesale market experienced serious negative prices at times of high wind and low demand. The feed-in system in Germany consists of a fixed feed-in price, a take-off obligation and a RES priority rule, and in practice only very restrictive use of RES-E curtailment. Exactly the latter is the problem. We argue that the overall performance of the system would improve seriously by lifting the restrictions on the use of voluntary curtailment agreements, while retaining the priority rule as such. Since generators of RES-E can only improve under this system reform, investment conditions improve, leading to higher installed RES-E capacity. This in turn implies that reduced wind output due to curtailment can actually be offset by higher wind output in all periods in which there is no problem.     

How important are current energy mix choices on future sustainability? Case study: Belgium and Spain—projections towards 2020–2030

Despite recent consumption decrease due to recession, European electricity sector is struggling to reach ambitious targets for reductions of greenhouse gas emissions. Our objective is to carry out a macro analysis of the energy mix in two European countries: Belgium and Spain. Life Cycle Assessments are carried for 2005 as well as for seven possible referenced scenarios to reach EU and also national legal objectives at the horizon 2020 and 2030. Ambitious renewable energy sources’ deployment plans can decrease impacts on the environment significantly as those sources replace polluting traditional sources, such as coal/lignite, oil or gas. When concentrating on projections for the future in Spain, results show that a mix with little coal and oil replaced by up to 54% of RES-E energy sources could bring environmental benefits with CO₂ emissions equivalent around 0.2 kg per kWh produced (compared with 0.54 kg in 2005). In Belgium, all future scenarios presented include more coal and gas with a limited share of RES-E; those mixes present more environmental harmful impacts (up to 0.56 kg CO₂ equivalent). This is why RES-E deployment is crucial as long as it is part of an electricity mix with reduced quantities of traditional fossil fuels.     

Modelling of auctioning mechanism for solar photovoltaic capacity

In this work, a modified optimisation model for the integration of renewable energy sources for power-generation (RES-E) technologies in power-generation systems on a unit commitment basis is developed. The purpose of the modified optimisation procedure is to account for RES-E capacity auctions for different solar photovoltaic (PV) capacity electricity prices. The optimisation model developed uses a genetic algorithm (GA) technique for the calculation of the required RES-E levy (or green tax) in the electricity bills. Also, the procedure enables the estimation of the level of the adequate (or eligible) feed-in-tariff to be offered to future RES-E systems, which do not participate in the capacity auctioning procedure. In order to demonstrate the applicability of the optimisation procedure developed the case of PV capacity auctioning for commercial systems is examined. The results indicated that the required green tax, in order to promote the use of RES-E technologies, which is charged to the electricity customers through their electricity bills, is reduced with the reduction in the final auctioning price. This has a significant effect related to the reduction of electricity bills.     

Are green hopes too rosy? Employment and welfare impacts of renewable energy promotion

In view of pressing unemployment problems, policy makers across all parties jump on the prospects of renewable energy promotion as a job creation engine which can boost economic well-being. Our analytical model shows that initial labor market rigidities in theory provide some scope for such a double dividend. However, the practical outcome of renewable energy promotion might be sobering. Our computable general equilibrium analysis of subsidized electricity production from renewable energy sources (RES-E) in Germany suggests that the prospects for employment and welfare gains are quite limited and hinge crucially on the level of the subsidy rate and the financing mechanism. If RES-E subsidies are financed by labor taxes, welfare and employment effects are strictly negative for a broad range of subsidy rates. The use of an electricity tax to fund RES-E subsidies generates minor benefits for small subsidy rates but these benefits quickly turn into significant losses as the subsidy rate exceeds some threshold value.     

Assessment of solar electricity production in the United Arab Emirates

In this work the possible large-scale integration of photovoltaic (PV) systems and parabolic trough concentrated solar power (CSP) technologies in the United Arab Emirates (UAE) power system is investigated in technical, economic and environmental terms. The analysis takes into account the available solar potential for UAE and in particular for the Emirate of Sharjah. In order to identify the least-cost feasible option for each renewable energy source for power-generation (RES-E) technology, a parametric analysis is carried out by varying each RES-E candidate system capital cost. From the analysis it is evident that an alternative cost-effective technology to the installation of a 50 MWp PV system might be the utilisation of a 50 MWe parabolic trough CSP system with either a 14.5 h thermal storage system or a 24/7 operation. The advantages of the latter are the dispatchability and the increased electricity output due to the utilisation of a thermal storage system, which leads to higher amounts of annual CO₂ avoided emissions. However, the electricity selling prices are higher than the current UAE electricity tariffs; therefore, for the promotion of solar RES-E technologies in the UAE, relevant financial supporting mechanisms need to be developed such as feed-in tariffs or feed-in premiums.     

The Spanish regulation of the photovoltaic demand-side generation

It is usually expected that demand-side generation gains momentum in places where retail grid parity is being reached. This is, for example, the case of photovoltaic generation in Spain. However, many different support schemes can be implemented. In Spain, the PV promotion policy gave priority to the ground-mounted installations. For years, the coupling of customer-side generation with excess energy exports was never specifically considered. Nonetheless, some months ago this option was suggested as a way to recover Spain's PV sector from the current moratorium on the RES-E policy. A first decree draft on on-site generation was issued, its central point being the consideration of electricity exports as delayed consumption rights. But several barriers hindered its entry into force. Finally, a second decree draft was issued in July 2013, which is expected to enter into force soon. This second draft impedes the economic viability of demand-side generation, thus complicating the recovery of the Spanish PV sector.     

Evaluation of green-certificates policies using the MARKAL-MACRO-Italy model

This study evaluates the overall effects of the present Italian Renewable Energy Supply of Electricity (RES-E) obligation and compares the contribution of each expected RES-E to the economic equilibrium mix resulting from computable economic equilibrium scenarios. The impact of the policies has been evaluated by means of a model of the Italian energy–environment system built with the MARKAL/TIMES methodology, which has been developed by the Energy Technology Systems Analysis Project of the International Energy Agency (IEA/ETSAP). Since the development of RES-E helps energy security, climate mitigation and the distribution of energy production revenues across the country, this study evaluates also an alternative scenario assuming a progressive increase of the RES-E obligation. Both scenarios are then compared with the targets fixed for each RES by the Italian White Paper on renewable energy source. Eventually the effectiveness of the RES-E policies implemented through the green-certificate mechanism are compared with the obligation to improve the efficiency of end-use devices fed by electricity and natural gas. Contrary to green-certificates policies, White certificates obligations increase energy security and GDP at the same time, because in principle they force end users to more rational choices.     

Hybrid modeling to support energy-climate policy: Effects of feed-in tariffs to promote renewable energy in Portugal

Feed-in tariffs have been the main policy instrument applied in Portugal for the promotion of electricity produced from renewable energy sources under the EU Directives on energy and climate regulation. In this paper, we provide an empirical impact assessment of the economic and environmental effects of Portugal's FITs policy to promote RES-E generation. Impact assessment of policy instruments plays a crucial role on decision-making process. For numerical simulations, we make use of a hybrid top-down/bottom-up general equilibrium modeling approach, which represents a reliable tool to analyze the complex interactions between economic, energy, and environmental issues related to energy policies.Numerical simulations confirm the empirical evidence that the FITs policy implemented by Portugal was both an effective and a cost-efficient way to increase the generation of electricity from renewable energy sources and thus to achieve the national RES-E target of 45% in 2010. Results show relatively modest macroeconomic impacts indicating potentially low economic adjustment costs. From an environmental perspective, the deployment of renewable energy source results in significant carbon emissions reductions.     

A reexamination of renewable electricity policy in Sweden

Green certificates are the main instrument for promoting renewable electricity (RES-E) in Sweden. But certificates cover only a limited share of total RES-E production. Under partial coverage, crowding out may arise whereby costly new RES-E replaces inexpensive old RES-E. Granting certificates to all of RES-E production improves efficiency, but leaves windfall rent to otherwise profitable facilities. We also analyze transaction costs in the permit process for new RES-E in Sweden. Municipalities veto socially desirable projects because of asymmetrically distributed investment costs and benefits. We propose market-based permit fees rather than limited veto rights as a solution to this NIMBY problem.