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| [[Portal:Wind|► Back to Wind Portal]] | | [[Portal:Wind|► Back to Wind Portal]] |
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| [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] | | [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] |
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| = Market-dependent and Market-independent REFIT Models<br/> = | | = Market-dependent and Market-independent REFIT Models<br/> = |
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| The design of a REFIT is an importment basement for the overall effectivenes of the development and integration of renewable energies into an energy system of a country. The payment levels must be high enough to give a return on investment, by this means encouraging investors to develop new projects. For this reason reliability of the REFIT over project lifetime is an important variable as well: If the REFIT-policy allows changes of the payment during project lifetime, this will cause additional risk for potential investors. | | The design of a REFIT is an importment basement for the overall effectivenes of the development and integration of renewable energies into an energy system of a country. The payment levels must be high enough to give a return on investment, by this means encouraging investors to develop new projects. For this reason reliability of the REFIT over project lifetime is an important variable as well: If the REFIT-policy allows changes of the payment during project lifetime, this will cause additional risk for potential investors. |
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| [[Feed-in Tariffs Wind Energy#toc|►Go to Top]]<br/> | | [[Feed-in Tariffs Wind Energy#toc|►Go to Top]]<br/> |
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| === Market-dependent Feed-in Tariffs<br/> === | | === Market-dependent Feed-in Tariffs<br/> === |
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| ==== Percentage of the Retail Price Model<br/> ==== | | ==== Percentage of the Retail Price Model<br/> ==== |
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| In this type of REFIT-Design the operator is paid a percentage of the retail price for the electricity delivered to the grid. As an example Germany offered a payment of 90% of the retail price for wind and solar application smaller than 5 MW under its feed-in law of 1990. In this way payments were directly connected to the spot market price. These types of models have been used in early renewable energy policies and are not used very often today. | | In this type of REFIT-Design the operator is paid a percentage of the retail price for the electricity delivered to the grid. As an example Germany offered a payment of 90% of the retail price for wind and solar application smaller than 5 MW under its feed-in law of 1990. In this way payments were directly connected to the spot market price. These types of models have been used in early renewable energy policies and are not used very often today. |
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| *<u>Advantages:</u> When models of this type have been implemented, the coupling of the tariffs to the retail price was regarded as an appropriate measure to remove some discretionarity from the REFIT, because premiums are not set by government agencies directly. The retail price itself is often seen as an 'objective referent' of the value of electricity, which should be the guiding value for the renewables tariff either. In general REFITs related to the retail price are easier to implement in comparison to fixed feed-in tariffs, because only the percentage has to be set without regard to different technology costs.<br/>An important advantages of the model is its sensitivity to market demand. The coupling to the retail price sets an incentive to supply electricity when demand is highest. | | *<u>Advantages:</u> When models of this type have been implemented, the coupling of the tariffs to the retail price was regarded as an appropriate measure to remove some discretionarity from the REFIT, because premiums are not set by government agencies directly. The retail price itself is often seen as an 'objective referent' of the value of electricity, which should be the guiding value for the renewables tariff either. In general REFITs related to the retail price are easier to implement in comparison to fixed feed-in tariffs, because only the percentage has to be set without regard to different technology costs.<br/>An important advantages of the model is its sensitivity to market demand. The coupling to the retail price sets an incentive to supply electricity when demand is highest. |
| *<u>Disadvantages:</u> As tariffs are not adjusted to the substantial variations in technology costs, resulting payments for generated electricity have been of inadequate renewable resources other than wind. Coupling of REFIT to the retail prices poses additional risk on investments, because financial benefits of projects can not be calculated accurately in advance.<br/>Additionally it has been observed, that the percentage of retail price model frequently lead to windfall profits in the past. | | *<u>Disadvantages:</u> As tariffs are not adjusted to the substantial variations in technology costs, resulting payments for generated electricity have been of inadequate renewable resources other than wind. Coupling of REFIT to the retail prices poses additional risk on investments, because financial benefits of projects can not be calculated accurately in advance.<br/>Additionally it has been observed, that the percentage of retail price model frequently lead to windfall profits in the past. |
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| [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] | | [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] |
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| ==== Premium Price Model<br/> ==== | | ==== Premium Price Model<br/> ==== |
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| A constant premium for electricity generated by renewable energy projects is offered above the average retail price. The idea of this model is to support integration of renewable energy projects into the market while at the same time higher investment costs are covered and an incentive for investment is set. | | A constant premium for electricity generated by renewable energy projects is offered above the average retail price. The idea of this model is to support integration of renewable energy projects into the market while at the same time higher investment costs are covered and an incentive for investment is set. |
| *<u>Advantages:</u> The payments can be adjusted to the different technology costs of renewable energies. In this way different policy goals like supporting a specific technology or diversifying the implemented portfolio in a country can be pursued. From the perspective of a project operator the premium price model causes more return with high prices and vice versa. | | *<u>Advantages:</u> The payments can be adjusted to the different technology costs of renewable energies. In this way different policy goals like supporting a specific technology or diversifying the implemented portfolio in a country can be pursued. From the perspective of a project operator the premium price model causes more return with high prices and vice versa. |
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| *<u>Disadvantages:</u>A higher risk of too high or too low premium level is often mentioned as a disadvantage of the premium price model. This can cause negative effects on market growth, and investor security similarily to the effects of the 'percentage of retail price model': The premium price model can not be regarded as an exactly definable base for investment calculation.<br/>Analyses have shown that on average, premium price policies cause higher costs per kWh than fixed-price policies<ref>M. Ragwitz, A. Held, G. Resch, T. Faber, R. Haas, C. Huber, R. Coeanraads, M. Voogt, G. Reece, P.E: Morthorst, S.G. Jensen, I. Konstantinaviciute, B. Heyder (2007): Assessment and Optimisation of renewable energy support schemes in the European electricity market, Fraunhofer IRB Verlag, ISBN 978-3-8167.</ref>. Generally the implementation of a premium price model imposes the risk of high policy costs due to increasing market prices. | | *<u>Disadvantages:</u>A higher risk of too high or too low premium level is often mentioned as a disadvantage of the premium price model. This can cause negative effects on market growth, and investor security similarily to the effects of the 'percentage of retail price model': The premium price model can not be regarded as an exactly definable base for investment calculation.<br/>Analyses have shown that on average, premium price policies cause higher costs per kWh than fixed-price policies<ref>M. Ragwitz, A. Held, G. Resch, T. Faber, R. Haas, C. Huber, R. Coeanraads, M. Voogt, G. Reece, P.E: Morthorst, S.G. Jensen, I. Konstantinaviciute, B. Heyder (2007): Assessment and Optimisation of renewable energy support schemes in the European electricity market, Fraunhofer IRB Verlag, ISBN 978-3-8167.</ref>. Generally the implementation of a premium price model imposes the risk of high policy costs due to increasing market prices. |
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| [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] | | [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] |
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| ==== Variable Premium Price Model<br/> ==== | | ==== Variable Premium Price Model<br/> ==== |
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| The described disadvantages of premium price models have been adressed by some jurisdictions through implementing regulations concerning the price premium: Spain introduced a cap and a floor for the price paid to the operators of renewable energy projects to avoid rapidly increasing policy costs. If the market price decreases below a certain minimum, premium is increased to ensure an adequate return for renewable energy projects. In turn the premium decreases with rising market prices and is finally off-set, in case the market price reaches the determined cap<ref name="Couture, 2010">Couture T.D., Cory K., Kreycik C. and William E. (2010) A Policy makers guide to feed-in tariff policy design, National Renewable Energy Laboratory, retrieved 18.7.2011 [[http://www.nrel.gov/docs/fy10osti/44849.pdf]]</ref>.<br/>In general the determination of certain upper and lower limits provides higher security for investment calculation. Thus risk perceived by potential investors is decreased<ref name="Ibid">Ibid.</ref>. | | The described disadvantages of premium price models have been adressed by some jurisdictions through implementing regulations concerning the price premium: Spain introduced a cap and a floor for the price paid to the operators of renewable energy projects to avoid rapidly increasing policy costs. If the market price decreases below a certain minimum, premium is increased to ensure an adequate return for renewable energy projects. In turn the premium decreases with rising market prices and is finally off-set, in case the market price reaches the determined cap<ref name="Couture, 2010">Couture T.D., Cory K., Kreycik C. and William E. (2010) A Policy makers guide to feed-in tariff policy design, National Renewable Energy Laboratory, retrieved 18.7.2011 [[http://www.nrel.gov/docs/fy10osti/44849.pdf]]</ref>.<br/>In general the determination of certain upper and lower limits provides higher security for investment calculation. Thus risk perceived by potential investors is decreased<ref name="Ibid">Ibid.</ref>. |
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| === Market-independent Feed-in Tariffs<br/> === | | === Market-independent Feed-in Tariffs<br/> === |
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| ==== Spot Market Gap Model<br/> ==== | | ==== Spot Market Gap Model<br/> ==== |
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| The spot market gap model operates basically similar to the explained variable premium price model with determined cap and floor: As long as the market price does not reach a certain limit set by the policy, the gap is 'filled' by additional payments to the renewable operator. If the market price rises, the FIT premium declines and is offset in case the set limit is reached. | | The spot market gap model operates basically similar to the explained variable premium price model with determined cap and floor: As long as the market price does not reach a certain limit set by the policy, the gap is 'filled' by additional payments to the renewable operator. If the market price rises, the FIT premium declines and is offset in case the set limit is reached. |
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| *<u>Advantages:</u> The important difference according to the variable premium model is the guaranteed payment per energy unit provided by this policy. While the variable premium model only fixed a certain limit of variations in payment, the spot market gap model determines a price, which can be used for financial assessments of renewable energy projects<ref name="Couture, 2010">Couture, T. and Gagnon, Y. (2010) An analysis of feed in tariff remuneration models: Implications for renewable energy investment, in: Energy Economics, Vol.38, pp.955-965</ref>. | | *<u>Advantages:</u> The important difference according to the variable premium model is the guaranteed payment per energy unit provided by this policy. While the variable premium model only fixed a certain limit of variations in payment, the spot market gap model determines a price, which can be used for financial assessments of renewable energy projects<ref name="Couture, 2010">Couture, T. and Gagnon, Y. (2010) An analysis of feed in tariff remuneration models: Implications for renewable energy investment, in: Energy Economics, Vol.38, pp.955-965</ref>. |
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| *<u>Disadvantages</u>: In some countries the premium, which is paid to fill the price gap, is financed through governmental subsidies. This strategy makes the model dependend to a policy budget, which could be exhausted and thus poses a certain risk on the investment in the renewable energy project. On the other hand, covering the difference by government subsidy means that electricity rates will not be influenced<ref name="Ibid">Ibid.</ref>.<br/>An additional disadvantage results from the transaction costs of marketing the power of a project to the electricity market. Especially for smaller project operator (communities, homeowner or farmers) it could be a burden to pose offers for the electricity to be sold and to observe the market continuously: On the first hand the spot market gap model increases the compatibility to existing electricity markets, but on the other hand it cause a significant additional work-load for project operators<ref name="Ibid">Ibid.</ref>. | | *<u>Disadvantages</u>: In some countries the premium, which is paid to fill the price gap, is financed through governmental subsidies. This strategy makes the model dependend to a policy budget, which could be exhausted and thus poses a certain risk on the investment in the renewable energy project. On the other hand, covering the difference by government subsidy means that electricity rates will not be influenced<ref name="Ibid">Ibid.</ref>.<br/>An additional disadvantage results from the transaction costs of marketing the power of a project to the electricity market. Especially for smaller project operator (communities, homeowner or farmers) it could be a burden to pose offers for the electricity to be sold and to observe the market continuously: On the first hand the spot market gap model increases the compatibility to existing electricity markets, but on the other hand it cause a significant additional work-load for project operators<ref name="Ibid">Ibid.</ref>. |
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| ==== Fixed Price Model<br/> ==== | | ==== Fixed Price Model<br/> ==== |
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| Fixed price REFITs today are the most frequently used tariff models. As the name 'fixed price model' describes, the implementation of these models contains the determination of a fixed payment for electricity for a fixed period of time (often the lifetime of the related technology is used). The payment is not influenced by other variables like market prices, fuel prices or inflation. As the fixed price is not adjusted to inflation, the real value of the payments decreases during the project lifetime. | | Fixed price REFITs today are the most frequently used tariff models. As the name 'fixed price model' describes, the implementation of these models contains the determination of a fixed payment for electricity for a fixed period of time (often the lifetime of the related technology is used). The payment is not influenced by other variables like market prices, fuel prices or inflation. As the fixed price is not adjusted to inflation, the real value of the payments decreases during the project lifetime. |
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| ==== Fixed Price Model with Full or Partial Inflation Adjustment<br/> ==== | | ==== Fixed Price Model with Full or Partial Inflation Adjustment<br/> ==== |
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| The fixed price model can be adjusted to several parameters. | | The fixed price model can be adjusted to several parameters. |
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| [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] | | [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] |
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| = Further Information = | | = Further Information = |
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| *[[Feed-in Tariffs (FIT)|Feed-in Tariffs (FIT)]]<br/> | | *[[Feed-in Tariffs (FIT)|Feed-in Tariffs (FIT)]]<br/> |
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| [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] | | [[Feed-in Tariffs Wind Energy#toc|►Go to Top]] |
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| = References = | | = References = |
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| <references /> | | <references /> |
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| [[Category:Feed-in_Tariffs]] | | [[Category:Feed-in_Tariffs]] |
| [[Category:Wind]] | | [[Category:Wind]] |
In addition, feed-in tariffs often include "tariff degression", a mechanism according to which the price (or tariff) ratchets down over time. This is done in order to track and encourage technological cost reductions. The goal of feed-in tariffs is ultimately to offer cost-based compensation to renewable energy producers, providing the price certainty and long-term contracts that help finance renewable energy investments[1]. The outline of the article is geared to an scientific analysis of feed-in tariff remuneration models by Couture and Gagnon (2010)[1] and to a policy maker's guide to feed-in tariff design published by the US National Renewable Energy laboratory (2010)[2].