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Clean Power feed-in tariff vs quota system

Published on October 9th, 2012 | by Charis Michelsen

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Feed-In Tariff System vs. Quota System — Feed-In Tariffs Cost Consumers Less



 
The quota model for renewable energy does not work as well as feed-in tariff models. In a report recently published by Germany’s Agentur für Erneuerbare Energien (Renewable Energy Agency), the feed-in tariff system was shown to deliver a lower cost to consumers than quota systems.

feed-in tariff vs quota system

The European Union’s Non-Unified Stance

The majority of the EU’s member states use some sort of feed-in tariff system, in which investments are made into renewable energy according to the cost of producing the energy. As time goes on, often the investments are reduced to encourage lower production costs over time. The remainder use a quota system, known in the United States as Renewable Portfolio Standards or Renewable Energy Standards.

Among those member states using  quota system, the prices end users pay for wind energy is consistently and considerably higher than the prices paid in member states with feed-in tariffs. This runs counter to the idea that quota systems are supposed to reward cheap tech and deliver the lowest-cost electricity possible to consumers.
 

 

Less Wind, Lower Prices…?

Germany is a model of the feed-in tariff system, having embraced wind energy to the tune of 29,000 MW. A large portion of its wind capacity is located in less than ideal locations — mainly, in mid-Germany. And yet, according to the Renewable Energy Agency, Germans pay €0.089/kWh for wind energy.

Compare the United Kingdom, which has much greater wind-producing potential but also a quota system. At first — and second, and third — glance, it would seem that it would be easier to produce electricity via wind and therefore lower production costs, leading to lower prices. That would be wrong. Consumers there pay €0.108/kWh.

While the issue is more complex than simply a question of investment vs. quotas, it seems reasonable to assume that the current quota system, at least, is not functioning as it should. Or that feed-in tariffs are just that much better. Questions or comments? Tell me I’m right or wrong and why? Sound off in the comments below!

Source: Renewable Energy World
Image: Wikimedia Commons

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About the Author

spent 7 years living in Germany and Japan, studying both languages extensively, doing translation and education with companies like Bosch, Nissan, Fuji Heavy, and others. Charis has a Bachelor of Science degree in biology and currently lives in Chicago, Illinois. She also believes that Janeway was the best Star Trek Captain.



  • AlanNogee

    I suspect the real comparison is between FITs and Renewable Energy Credits (RECs), which most RPS’s rely on. There is no reason one couldn’t implement an RPS with a FIT rather than with a REC. The floating price of the REC creates investment risks that don’t appear to offset the theoretical competitively determined price of RECs. The problem in the US is that utilities hate the administratively determined price of FITs for large projects, when there are always some projects that can beat that price.

    • http://cleantechnica.com/ Zachary Shahan

      Good points! Thanks for chiming in.

  • ThomasGerke

    It’s the old stick & carrot situation.
    You can either try to force somebody (energy corporations) to change their business model OR you can encourage everyone to do the same, by providing them with the opportunity to do so.

    In Germany indivudals, farmers & SMEs started making good use of this new opportunity and controll almost 20% of the electricity supply today.
    In the UK/US those vested interessts that have the smallest interesst of changing their businessmodel are in charge of adding a few renewables, passing the cost to consumers.

    • http://cleantechnica.com/ Zachary Shahan

      Yep.

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