Environmental Engineering Reference
In-Depth Information
cost-covering prices. Governments can enact legislation to give priority to
the connection of plants for renewable energies to the energy grids. Such
regulations are necessary because the actors involved in the conventional
energy industry are not normally interested in stepping back in favor of
other suppliers. Two instruments have been applied to ensure that higher
prices are obtained for renewable energy: quota systems and fixed-price
systems (feed-in tariffs).
Under quota systems, a target is set for renewable energies and fines
threaten for those failing to meet the quota. The fact that the energy
supplied is from renewable sources is usually demonstrated by a certificate,
which can also be traded without direct relation to the energy. In practice,
quota-based models have not been effective so far because there are no
reliable general economic conditions on which plant owners can rely as
regards a minimum level of security of their investment. As a result of the
lack of planning certainty, only investors with sufficient capital enter the
market and expect an appropriate return on their planning uncertainty.
According to experience in the UK, the prices of energy funded in this way
are higher by one third in comparison with fixed-price systems. Quota
models normally also contain rules as to whether the renewable energy
should be wind, solar, biomass or hydropower. As a result, only the most
cost-effective renewable energies are used and their quality is poor because
in many cases the lower-priced renewable energies cannot be supplied
continuously. Another negative effect of the quota models is the fact that, as
a result of the absence of investment certainty, efficiency improvements in
the supply of energy can hardly be expected because of the absence of
incentives for industry to invest in longer-term research and the low level of
competition among the few players in the market. Due to the small number
of actors, profits from windfall gains have been achieved under the quota
system (AEE 2010).
Under fixed-rate models, typically, fixed rates are paid for the feeding in
of different renewable energies for a certain term after start-up of the
production plant. The higher cost in comparison with conventional
electricity is then split among all electricity customers. This gives plant
owners the reassurance that their investment is certain and even local actors
can obtain loans from banks for funding projects. Companies supplying
equipment for the production of renewable energies can invest in research
and development because they also know that their capital investment is
protected. Technological progress in the different industries is encouraged in
an optimum way. The big challenge, however, is that the feed-in rates paid
must be verified regularly. They must be sufficient to enable plant owners to
fund investments and make equipment suppliers confident of their
investment in research for higher efficiency. On the other hand, the feed-
in tariffs must not be so high so that no windfall gains result for plant
￿ ￿ ￿ ￿ ￿ ￿
Search WWH ::




Custom Search