 As discussed above, given the market distortion and market barriers, financial incentives are required to attract investors to achieve the economically viable optimum quantity of renewable energy. In addition, by accelerating market deployment, the technologies will more quickly achieve cost reductions from learning and economies of production, and this speed up the date by which they will be economically competitive without policy instruments. Furthermore, countries with such policies are very likely to grow strong local manufacturing industries to provide renewable energy systems and equipment that can capture export markets as their technologies become more competitive in other markets and create jobs.
The four principle categories of renewable energy policies are: - Mandated Market Policies: Policies that mandate that either a share of the electricity delivered to end consumers by suppliers comes from renewable sources or by imposing an obligation on electricity suppliers to buy renewable energy based electricity at a government determined price. Concomitant with that obligation is the right of the electricity suppliers to recover the additional cost from consumers and for electricity generators to be able to connect to the grid.
- Financial Incentive Policies: Policies designed to provide financial and fiscal incentives to renewable energy producers through grants, loans, loan guarantee, tax credits, and carbon financing
- Public Investments: Public funds for renewable energy can be investment funds or guarantee funds. The funding sources usually come from a levy on all electricity consumers or a tax on fossil-fuel-based power generation. Public funds can be used to support rebates, infrastructure, business development, R&D, public awareness, etc.
- Market Facilitation Activities: Policies and regulations to set up standardized power purchase agreements and tariff setting principles for renewable energy, grid interconnection rules and public awareness.
These policies usually also include the legal framework allowing independent power producers of renewable energy and assuring grid connection. Given that the financial prices of fossil fuel-based electricity generation do not reflect the costs of environmental damage and price violability, as a result, there usually exists incremental financial cost of renewables-based electricity. Therefore, a primary policy barrier to large scale deployment of renewable energy in many countries is who should pay for the incremental financial costs. All the policy instruments should address this key issue. See Sharing Incremental Cost. The effectiveness of any set of government policies depends on how well they are designed and whether or not they are enforced. The use of a particular policy type does not guarantee success. In addition, the policies need to be appropriate to the types of technologies, projects and applications they are trying to promote. Furthermore, each country has unique circumstances and must design and enact its own set of policies based on needs, competing interests and available resources. See Requirements for a Successful Policy. The experiences of countries such as Denmark, Germany, Japan, Spain and Brazil have demonstrated that policies which produce consistent and reliable markets lead to steady and significant reductions in the cost of renewable energy. Stable markets allow for the entry and maturation of small- and medium-scale enterprises, which have provided the bulk of the technological innovation that has driven down renewable energy costs. In addition to the “global learning curve” that exists for technologies such as wind turbines and PV cells, there is a “national learning curve” as individual countries develop domestic industries that are able to manufacture, install and maintain renewable energy systems using local equipment and labor. Those countries that do not yet have sizeable industries in place can expect dramatic price reductions in the first few years after effective new policies are introduced. |
RSS