Environmental Engineering Reference
In-Depth Information
investors, stimulate the growth of local industry, and enhance market access for
investors to have a quantitative measure of the impact of the generation of RES.
The criticisms made to the feed-in tariff scheme show that a fixed-price system is
not compatible with a free market. In this regard, there are often introduced down-
ward adjustments to these rates, for reasons of technological developments which
will meet the market. Generation costs in fact are intended to fall with the develop-
ment of technical improvements.
An alternative approach to the feed-in tariff payments is the feed-in premium, or
bonus, above the prevailing market price.
Feed-in premium policies offer a premium above the average spot electricity
market price, which distinguishes them from the feed-in tariff payment structure.
Feed-in premium payments, either the premium or the total payment, are dependent
on the market price for electricity.
The premium payment can be made in terms of two objectives: to represent the
environmental costs and therefore the costs incurred to the company, or the best way
to approximate the generation costs of RES. In the approach feed-in premium, the
electricity generated from RES is sold on the spot market, where an assurance of
guaranteed purchase is generally included and thus leads the generation of RES to
separate the dynamics of the spot market.
Feed-in premium policies have been offered in some EU countries like Spain, the
Czech Republic, Estonia, Slovenia, the Netherlands and Denmark.
Rates of feed-in premium can be differentiated to make payments as close as
possible to the costs for each technology type and size of the project. However,
since the total revenues of the project depend also from the market price of elec-
tricity, it is appropriate to make some considerations. First, the feed-in premium
can be constant or sliding. The constant premium policies generally provide a con-
stant, nonvariable, adder on top of the spot market price. In this configuration, the
bonus is on top of the market price and does not respond to changes over time and
continues to be offered even if the price of electricity rises. In many sources, the
premium payments are called "fixed-premium" policies. This is not the same as the
fact that with the feed-in tariff that is fixed, because in this latter the total payments
are fixed for the duration of the contract, while in the fixed-premium case the
total payment varies with the market price. The designers of the feed-in premium
policy can also introduce a floor and a cap on the total amount of the premium or
the total amount of the payment. If the market price increases, the policy can be
answered by sliding the option premium, which can minimize the total cost of this
policy by providing a framework for further payments based on costs. There are
many ways to determine the payment of the feed-in premium. The first structure
exposed refers to the award as a constant, predetermined to be added on the spot
market.
The policies of constant feed-in premium create an incentive to generate elec-
tricity when demand is high and when market prices are high. The high spot prices,
along with the fixed adder on top, tend to encourage the provision when there is
most need. The prospect of higher payments can be seen as a compensation for the
higher risk market. However, since a constant is added premium to the spot price
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