Environmental Engineering Reference
In-Depth Information
Finally, unless the rates are not differentiated by the location of the projects, it
is possible that fixed pricing policies do not create incentives to develop electric
resources where there is actually needed. In particular, the policies of fixed-price
feed-in tariffs that provide interconnection network cannot provide incentives for
development in areas prone to congestion, where the spot market prices tend to be
higher, or alternatively, where the marginal value of the new generation is higher.
The feed-in premium policies have many advantages that cannot occur in the ap-
proach instead of a fixed price. They are more market oriented than the fixed-price
schemes because the premium payments depend on the prevailing price of electric-
ity. Consequently, this scheme can create incentives to produce electricity when de-
mand is high and encourages the installation of new generation in areas with higher
average market prices for the pricing structures related to localization. In addition,
this market orientation can lead to a more efficient management of the network and
better provision of related services. Electricity generators are requested on the spot
market with the policies of feed-in premium, so that the generators of RES compete
with each other and with conventional generators. So, these premises lead us to
think that the feed-in premium scheme will encourage more competition among
electricity producers. Although the feed-in premium scheme involves some disad-
vantages, the policies feed-in premium have demonstrated a lower degree of cost
efficiency compared to the feed-in tariffs, which involves payments higher average
per kilowatt-hour. This is primarily due to the fact that the premium-price option
requires higher risks because revenues are less certain. The highest risks require
higher returns and this translates into higher costs per kilowatt-hour for the com-
munity as a whole, if it is intended however to achieve a certain level of the RES.
The feed-in premium policies generally do not include a guarantee of purchase.
Those who participate in the option premium sell their electricity on the spot market
and receive the corresponding market price, with the added feed-in premium. Inves-
tors perceive the absence of a guarantee of purchase as an additional risk premium
in the option, and this mechanism leads to demand higher returns on investment.
As projects related to wind and solar cannot influence the time that offer electricity
network, it is likely that these technologies can benefit to a lesser extent the option
premium. So, while the feed-in premium scheme can provide useful incentives for
projects of hydropower, solar thermal electric, biogas, biomass, and solar energy
can be penalized because they cannot adapt their supply with the trend of market
prices. However, the adoption of feed-in premium scheme should be seen as an
adaptation to the times.
There are pros and cons of these tools are changing over time. The EU moved as
a pendulum, switching from feed-in premium to feed-in tariff in the past and now it
returns to the feed-in premium.
Since 2016, competitive bidding processes will be the rule, and then the power
generators will have to sell electricity on the market taking into account the short
term. In particular, in 2015-2016, EU member states will begin to implement com-
petitive bidding procedures for small shares of their new capacity from RES. From
2017 onwards, EU member states shall set up tenders to grant support to all new in-
stallations. EU member states will be obliged to use the premiums above the market
price, as support tools for integrating RES in the market.
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