lecture 5 policies to support renewable energy sources · need for support for renewable energy...
TRANSCRIPT
Lecture 5Policies to support renewable energy sources
Environmental Economics, Politecnico di Milano, Academic Year2015-2016
Giovanni Marin
IRCrES-CNR, Milanoe-mail: [email protected]
Giovanni Marin Environmental Economics - Lecture 5 1 / 19
Outline of the lecture
� Need for support of renewable energy?
� Comparison of the different support mechanisms for renewable energy� Price-based� Quantity-based
� Data on European and Italian markets
Giovanni Marin Environmental Economics - Lecture 5 2 / 19
Need for support for renewable energy
� Electricity production based on fossil fuels generates environmentaldamages ⇒ external costs
� Renewable energy technologies are still not mature
� Reliability issues of renewable energy sources
� Job creation at the local level
� Renewable energy sources (e.g. wind, solar) require initial supportmechanisms to compete with large hydro and thermal plants
� They also require policy support to reduce investors’ uncertainty
Giovanni Marin Environmental Economics - Lecture 5 3 / 19
Types of support schemes for renewable energy
� Price based approaches� Obligation of electric utilities to purchase electricity generated by
renewable energy sources at a predetermined price ⇒ feed-in tariff� Premium on spot market electricity price for electricity generated by
renewable energy sources ⇒ feed-in premium
� Tradable green certificates (quantity-based approach):� Electric utilities are required to generate a certain quota of electricity
with renewable energy sources� If they do not produce enough electricity with renewable energy sources
they can buy it from other companies that produced in surplus
� Many countries also complement these instruments with other fiscalmeasures (grants, tax credit, etc)
Giovanni Marin Environmental Economics - Lecture 5 4 / 19
Feed-in tariff
� Renewable energy producers are paid a set rate for their electricityover a long term period
� The tariff is usually differentiated by technology and size of theinstallation
� Given the tariff, markets determine the total installed capacity andthe total generation
� Feed-in tariff schemes were very effective in most countries in boostingthe diffusion of renewable energy sources (e.g. Germany, Italy, Spain)
� Fixed prices provide stable investment climate
� Long term stability leads to innovation
Giovanni Marin Environmental Economics - Lecture 5 5 / 19
Feed-in tariff
� The subsidy generated windfall profits for producers of renewableenergy
� They were not probably cost efficient (public funds used for thesubsidy are collected with distortionary taxation)
� Generate rent-seeking behaviours
� May induce technological lock-in
� Interaction with other policy instruments ⇒ ETS� Generation of electricity with renewable energy ‘releases’ permits within
the ETS for other generators of CO2 emissions� If the feed-in tariff is unilaterally set by one single country (e.g.
Germany) that would reduce the price of CO2 allowances also in othercountries ⇒ lower compliance costs in other countries subsidized byGerman taxpayers...
Giovanni Marin Environmental Economics - Lecture 5 6 / 19
Renewable energy quota obligations
� The government mandates a minimum share of capacity or generationto be based on renewable energy sources
� This obligation is usually combined with tradable green certificates� The market decides the price of green certificates� These schemes are very useful to support low-cost (i.e. mature)
technologies
� With tradable certificates cost efficiency is attained
� Volatility and uncertainty about the value/price of certificates have anegative impact on investments
� Large windfall profits for incumbent utilities with a big installedcapacity in renewable energy sources
Giovanni Marin Environmental Economics - Lecture 5 7 / 19
Support schemes and innovation
� Feed-in tariffs are particularly effective for the diffusion oftechnologies that are not mature
� Policy-induced acceleration in the diffusion facilitate the movementalong the learning curve
� Extensive evidence in the economic literature about the strong andpositive impact of feed-in tariffs on innovation in renewable energytechnologies (patents)
� Even more powerful if coupled with liberalization of the electricitymarket
� Incumbent firms have little incentive to innovate in these technologiesas that would erode their profits arising from traditional technologies
� Easing entry of new players may help boosting innovation (by entrant)
Giovanni Marin Environmental Economics - Lecture 5 8 / 19
Figure: Total primary production for EU28 (TJ, Eurostat)
0
500000
1000000
1500000
2000000
2500000
3000000
3500000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Hydro power Wind power Solar thermal
Solar photovoltaic Tide, Wave and Ocean Geothermal Energy
Giovanni Marin Environmental Economics - Lecture 5 9 / 19
Figure: Total primary production of renewables excluding hydro (TJ, Eurostat)
0
50000
100000
150000
200000
250000
300000
350000
400000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Germany Spain France Italy United Kingdom
Giovanni Marin Environmental Economics - Lecture 5 10 / 19
Figure: Total primary production of hydro (TJ, Eurostat)
0.0
50,000.0
100,000.0
150,000.0
200,000.0
250,000.0
300,000.0
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Germany Spain France Italy United Kingdom
Giovanni Marin Environmental Economics - Lecture 5 11 / 19
Figure: Total primary production of wind (TJ, Eurostat)
0.0
50,000.0
100,000.0
150,000.0
200,000.0
250,000.0
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Germany Spain France Italy United Kingdom
Giovanni Marin Environmental Economics - Lecture 5 12 / 19
Figure: Total primary production of solar thermal (TJ, Eurostat)
0.0
20,000.0
40,000.0
60,000.0
80,000.0
100,000.0
120,000.0
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Germany Spain France Italy United Kingdom
Giovanni Marin Environmental Economics - Lecture 5 13 / 19
Figure: Total primary production of solar photovoltaic (TJ, Eurostat)
0.0
20,000.0
40,000.0
60,000.0
80,000.0
100,000.0
120,000.0
140,000.0
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Germany Spain France Italy United Kingdom
Giovanni Marin Environmental Economics - Lecture 5 14 / 19
Figure: Italy - Installed capacity for electricity generation (MW, Eurostat)
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Combustible fuels Hydro Mixed plants Pure pumped hydro
Geothermal Wind Photovoltaic
Giovanni Marin Environmental Economics - Lecture 5 15 / 19
Italian ‘Conto Energia’
� Introduced in 2005 following the EU Directive on renewable energy(2001/77/CE)
� Feed-in tariff for solar photovoltaic� Primo Conto Energia (July 2005)
� Up to 85MWp of new installed capacity per year� Feed-in tariff of about 0.5 euro per kWh for 20 years� 5% reduction in the feed-in tariff for each year
� Secondo Conto Energia (February 2007) ⇒ mostly changes in thebureaucratic procedures
� Terzo Conto Energia (August 2010) ⇒ differentiation of tariff fordifferent installations (and reduction of the tariff)
� Quarto Conto Energia (May 2011) ⇒ further reduction in tariffs� Quinto Conto Energia (July 2012) ⇒ ceiling set to 6.7 billion euro/year
� In July 2013 the ‘Quinto Conto Energia’ was ended and substitutedwith a 50% tax credit for the installation of solar photovoltaic
Giovanni Marin Environmental Economics - Lecture 5 16 / 19
Installed capacity under ‘Conto energia’
Giovanni Marin Environmental Economics - Lecture 5 17 / 19
Green certificates (Certificati verdi)
� Introduced in 1999 (Decreto Bersani), kick-off in 2004
� Electric utilities have to produce at least 2% (in 2004, +0.35% everyyear) of their electricity with renewable sources
� If an utility cannot attain that target, it has to purchase ‘certificates’from other producers to reach the target (certificati verdi)
� There is a market for these certificates
� Differently from the feed-in tariff, there exists uncertainty about theprice of certificates
� Useful for more mature technologies (e.g. wind)
Giovanni Marin Environmental Economics - Lecture 5 18 / 19
Green certificates
0
20
40
60
80
100
120
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
8000000
9000000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
MWh €/MWh
Giovanni Marin Environmental Economics - Lecture 5 19 / 19