Harmonising renewable support mechanisms Dr David Toke Senior

Harmonising renewable support mechanisms Dr David Toke: Senior Lecturer in Environmental Policy, University of Birmingham and also Energy Expert, World Future Council

What is a REFIT? • Guaranteed minimum price for electricity sales • Long term contract for power purchase (15 -20 years) • Different to NFFO and RO

What is a renewable electricity certificate scheme (RECS) • Electricity suppliers given renewable obligation • RE projects sell certificates (and energy) • Electricity suppliers buy certificates or pay penalty

Use of systems • REFIT dominant in Europe (over 80 per cent of EU wind power installed under REFIT) • Less than 10 per cent of EU wind power installed under RECs • RECs used in USA, but underpinned by ‘rich man’s REFIT, the Federal ‘Production Tax Credit’

Why a REFIT? Less income uncertainty, higher project IRR for a given income level

Country Tariff in Average Annual Return per p/KWh capacity installed MW (£) 2004 factor 2004 (%) Germany (REFIT) 5. 5 18 87, 000 United 5. 2 Kingdom (RECS) 28 128, 000 Spain (REFIT) 28 110, 000 4. 5

2005 -2006 Country Tariff Average in p/KWh capacity Annual Return per installed MW (£) factor (%) Germany 5. 6 18 88, 000 (REFIT) (declining) United Kingdom 7. 3 28 179, 000 5. 9 28 145, 000 (RECS) Spain (REFIT)

UK RO confusion? • Uncertainty over future price of renewable obligation certificates (ROCs) • Uncertainty over future value of electricity • Banks use low estimates of future income • In practice projects earn much more than what they would if income stream was secure • RO not cost effective • But local investors deterred by insecurity

REFIT = transparency for local and small investors • Local investors often need lower returns • Local investors have better networks to gain planning consent • REFIT better for higher cost renewables such as solar power

Advantages of harmonisation

Theoretical advantages of harmonisation • Investment would flow to where it is most efficient • All countries would be forced to participate

Harmonised EU-wide RPS? • Great uncertainty over certificate value • Lack of competition in several countries (eg France, Germany) • Bottlenecks in some countries (eg UK) • Loss of local investment • Some countries would refuse to participate

A single REFIT? • Local conditions (esp wind speeds) differ • Some countries would object

Harmonised transferability • UK RO de-stabilised • Germans would pay for Danish etc renewables • No efficiency advantages

Contacts • ‘Making Renewables FITTER’ report available at http: //www. worldfuturecouncil. org/ • Dr David Toke: d. toke@bham. ac. uk • Miguel Mendonca (WFC): miguel@worldfuturecouncil. org