Environmental Engineering Reference
In-Depth Information
There are other instruments which have received less attention in comparative
analyses, including investment subsidies and tendering.
Investment subsidies are usually granted per unit of installed capacity (i.e.,
€
/
MW), i.e., not generation (i.e.,
€
/kWh).
Tendering/bidding systems. The government
invites RES-E generators to
compete for either a
nancial budget or RES-E generation capacity. Within each
technology band, the cheapest bids per kWh are awarded contracts and receive
the subsidy (i.e., bid price per kWh).
The comparative analysis of RES-E support schemes has focused on the FITs
versus TGCs dichotomy, probably re
ecting the fact that these two have in the past
been the two main instruments on which Member States have based their support
schemes. These instruments have been compared on the basis of the effectiveness
and cost-effectiveness criteria (see Sect.
2.4
).
2.3.2 The Reply
“
”
In our view, the RES-E literature has been trapped into
instrumentalism
, often
“
times providing a too abstract, blackboard discussion on
which are the best
instruments
”
. Only recently have researchers stressed that the devil lies in the
details and that the success or failure of instruments applied in the real world mostly
depend on their design elements, i.e., intra-instrument differences may be
as important as inter-instrument ones. This has been clearly shown in empirical
analyses (see [
39
42
]). We should be particularly careful
in avoiding biased
-
analyses, in which a
“
well designed instrument 1
”
is compared to a
“
badly designed
instrument 2
and conclusions are inferred about the instruments, leading to the
wrong interpretation that the later instrument is worse than the former, when the
difference really lies in the particular design elements being chosen. Finally, the
focus on FITs and TGCs should cease and the suitability of other instruments
should also be assessed. In particular, tendering/bidding schemes are a good can-
didate in this regard, since, as with FITs, but in contrast to TGCs, both ensure a
reliable, long-term income for renewable energy investors and they also allow
regulators to know in advance the level of support being awarded. However, under
tendering schemes, the total amount of support provided can be more easily capped
than under either FIT or TGCs, allowing investors to compete until the whole
budget is gone.
10
In addition, auctions deal better with the asymmetric information
problem, i.e., they perform better than FITs when trying to know the true level of
support required, especially for those technologies with large uncertainties about
their cost trends, like off-shore wind. Auctions reveal better the reduction in the
”
10
It can be argued that, since RES-E generation is capped under TGCs, the total amount of
support would also be capped. However, this is not the case, since total support depends on the
amount of RES-E generation times the level of support, which depends on the a priori unknown
interactions between the demand and supply sides in the TGC market.
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