Policies for the development of RES in the European Union - The Sustainability of Renewable Energy in Europe - page 68

market, the additional payment is agnostic to spot market prices. All this can result
in average levels of higher payments when electricity prices increase, which then
increases the pressure on the total costs of the policy.
This is confirmed in an analysis of the policies of feed-in premium constant,
where the average level of payments is about 1-3 cents/kWh higher than those
with feed-in tariff policies (Couture et al. 2010 ). In addition, the pattern of feed-in
premium does not consider that electricity prices may decline sharply, so it is pos-
sible that the revenues are insufficient to cover the costs. This uncertainty about
future revenues creates an additional risk for investors, who are likely to increase
the required equity returns and potentially the debt interest rates, which increase the
marginal costs of RES deployment.
In response to potential problems related to the approach of the premium con-
stant, some jurisdictions allow the feed-in premium to vary inversely with respect
to the market price in oder to stabilize the profits. As for the feed-in tariff poli-
cies, it is possible to differentiate the premium to reflect as best as possible the
generation costs of RES. The premium differentiation is important as differentiat-
ing tariffs in fixed-price options. It allows that the expected amount of payment
approximates the actual levelized costs of technology development, while still
retaining the market orientation. By differentiating the premium amount, countries
using premium policies can differentiate the payment level awarded per kilowatt-
hour with greater accuracy, although it is unlikely that the actual payment levels
are as close to flush with the cost of generation as it happens with the fixed-price
option.
With regard to strategies based on the quantity, the desired level of energy pro-
duced from RES or market penetration is defined by governments. Among quantity
strategies, the most important tools are the tender system and the tradable certifi-
cates system. In the tender system, notices are carried out on a regular basis and
for a defined quantity, and the contract is given to the bidder that offers the lowest
price. The winners of the tenders get a fixed price per kilowatt-hour for the period
of the contract, and the contract itself offers the winner a set of favorable condi-
tions for investments. In the system of tradable certificates, companies that produce
energy are required to provide or acquire a certain percentage of electricity from
RES. Subsequently, at the date set in the agreement, they must submit the number
of certificates to demonstrate compliance.
The companies involved in the tradable certificates system can obtain a certifi-
cate from their generation of RES electricity; they may also buy electricity from
RES and associated certificates from another generator, or they can buy the certifi-
cates that have been marketed independently by their production of energy.
Economic incentives for RES vary between EU member states (Table 3.2 ).
For instance, in Germany, the main program of support for electricity is repre-
sented by an incentive based on price, i.e., the feed-in tariff scheme. The law states
that tariffs do not depend on the market price of energy but are defined in the law
and that the rates are different for wind energy, biomass, photovoltaic, etc. More-
over, these rates decreased over time in order to take account of the technologi-
cal learning curves and then improvements. The UK has been the first European