Published on October 9th, 2012 | by Charis Michelsen4
Feed-In Tariff System vs. Quota System — Feed-In Tariffs Cost Consumers Less
October 9th, 2012 by Charis Michelsen
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.
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!