Policies for the development of RES in the European Union - The Sustainability of Renewable Energy in Europe - page 66

given through the feed-in tariff or a fixed premium that governments have to pay
for RES produced by the companies entitled. Within the instruments based on the
price, the most widely used within the EU is the feed-in tariff scheme under which
the supplier or network operators are obliged to buy electricity produced from RES
at a higher price compared to the price they pay for energy from fossil fuels, since
RES' technologies are younger and therefore production costs are higher. The feed-
in tariff incentive allows producers to sell the energy produced at a fixed rate for a
specified period of time. In this way, producers have the certainty of the economic
return on their investment.
The feed-in tariff is a policy on the supply side of energy that supports the de-
velopment of RES projects by offering long-term purchase agreements for the sale
of RES electricity.
These purchase agreements are generally offered with contracts lasting 10-15
years and are extended for each kilowatt-hour produced. The payment levels of-
fered per kilowatt-hour may be different depending on the type of technology, the
size of the project, the quality of resources, and finally the location of the project
that best reflects the true costs of the project (Couture et al. 2010 ).
The authorities can also adjust the levels of payment for installations, reducing
in subsequent years, so as to encourage technological improvements. Successful
policies related to the feed-in tariff include three key provisions: guaranteed access
to the grid, stable purchase contracts and relatively long duration (15-20 years),
payment levels based on the costs of RES generation. In some countries such as
Germany, the policies also include streamlined administrative procedures to mini-
mize project costs and speed up the rate of development of RES.
In addition, eligibility is extended to all those who are able to invest, including
homeowners, businesses, and state and local government agencies, private inves-
tors, and nonprofit organizations. One of the most important challenges for policy
makers is to determine the right amount of feed-in tariff payments. Taking a look at
what is happening in the world, there are a variety of approaches used that reflect
diversity in political objectives. The different approaches can be classified into the
following categories:
• Based on the actual level of the levelized cost of energy (LCOE) generation from
RES. This approach is the most common, it is mainly used in the EU, and it is the
method that has proven success in the development of RES
• Based on the value of RES generation to society, expressed in terms of avoided
costs
• Offered as an incentive to price fixed without reference to the LCOE for the RES
or avoided costs
• Based on the results of an auction process, which can reduce price distortions as
it refers to the market. The auction-based mechanism can be applied to differ-
ent technologies and differentiated based on the size of projects, etc., and it is a
variation of the approach based on the cost
The arguments in favor of the policy of feed-in tariff are principally economic in
nature. Among these, there is the ability to provide a secure and stable market for