Renewable Energy Promotion: Usual Claims and Empirical Evidence - Green Energy and Efficiency: An Economic Perspective - page 336

costs of technologies over time and allow the support to be adapted accordingly.
This ideally brings more ef ciency into the system by preventing RE producers to

be overcompensated. It also encourages competition between RES-E generators.
Banded bidding schemes with pay-as-bid mechanisms allow support to be tied to
generation costs, in contrast to TGC schemes (whether banded or not) [ 43 ]. The fact
that they are only modestly being applied in Europe might be a re

ection of the fact
that previous experiences in Europe have been rather disappointing (see [ 43 ] for
further details). However, these experiences (in the U.K., Ireland and France) were
probably disappointing not because of inherent

aws in the instrument, but because
the design of the schemes was not the appropriate one, which con rms the rele-

vance of taking the design elements of the scheme into account.

2.4 Market-Based Deployment Instruments Are Superior

2.4.1 The Usual Claim

There is a general presumption among environmental economists that market-based
instruments work better than non-market-based ones (see [ 12 ]). In the RES-E policy
realm, the former are generally identi ed with quotas with TGCs, while FITs are

usually not considered a market-based instrument. TGCs are presumed to work
better regarding cost-effectiveness (compliance with a given RES-E target at the
lowest possible costs) because they interfere less with the market since the level of
support (i.e., the TGC price) would be set in the TGC market and this would
automatically lead to [ 44 ]. In contrast, under FITs, remunera-

tion levels would be set by the government. TGCs comply with the

“ cost-effectiveness ”

rst equi-
marginality principle, which is not necessarily the case under FITs. According to
Tietenberg [ 45 ], an environmental target is achieved at the lowest costs when the
marginal costs of all possible means of achievement are equal.
The following table (Table 2 ) provides a simple illustration of the equimargin-
ality rule. We consider three renewable energy technologies, all with increasing
albeit different marginal costs (i.e., worst locations in terms of a speci c renewable

energy resource are more costly). Assume that the government sets a RES-E target
of 21 MWh. The costs of complying with the target are minimized (429 € ) when the

marginal costs for all three technologies are equal, i.e., at 39 /MWh. The different

technologies contribute differently to this target: the lowest cost technology (B)
contributes more than the other, more expensive technologies (i.e., 9 MWh for
technology B versus 8 MWh for technology C and only 4 MWh for technology A).
The costs of attaining the 21 MWh target would be signi

€

cantly higher (487 € ) if all

the technologies contributed to the same extent.
In principle, a TGC scheme would ensure that the equimarginality principle is
complied with (at a TGC price of 39

€

/MWh). This is not the case under FITs, since
the government would need to set the remuneration level at exactly 39 € /MWh.

However, this is dif cult, since it would need information on the marginal cost

curves, which might not necessarily be the case.