Mecanismos básicos de propagación

One should also make a difference between the two types of schemes based on the extent and „quality‖ of policymaker involvement. In a TGC scheme, the role of the policymaker is to determine the targeted share of renewables and to update (ideally: gradually increase) it year by year. The operation mechanism itself – how the prices of electricity and the green certificates are determined – is left to the market.

In order to protect both those who are obliged to buy and the investors, it has become common practice to set a minimum and a maximum price for green certificates. The role of the price cap is to prevent the price from rising to unrealistic levels, from exceeding a certain value even if the supply of green certificates happens to lag behind the amount demanded/targeted in any given year. Should the price increase above this level, obligors are granted the option to „buy out‖ (a part of) their TGC obligation at this buy-out/substitution price. The minimum price of TGC, at the same time, protects investors from excessively low price levels, as this type of regulatory system does not prevent an excess supply from occurring in the TGC market (possibly due to new entrants or a higher amount of renewable energy production as a result of weather conditions exceeding expectations), which may act to push down

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the price to near-zero levels. Also, there may be green certificate owners who simply cannot sell their certificates any more, which renders them practically worthless (Fristrup, 2003).

The costs of promoting renewable energy production (the bonus price that the certificates offer) are ultimately paid for by electricity consumers, i.e. residents and businesses. Consequently, the policymaker is also responsible for keeping their burden under control. In TGC systems, limited quantities and market (thus efficient and non-excessive) prices keep the burden on end consumers between certain limits, so the risk of their getting out of control is rather limited (Butler - Neuhoff, 2008). In TGC schemes, it is the determination of quantity where the policymaker may make a mistake, setting it too low/high; however, since this is a flexible, market- based system, the mistake can be corrected within a certain period of time. Is the quota too low, there will be excess supply in the renewable market, acting to depress the price of certificates and to keep new investors away from the sector; but the policymaker can adjust the quota for the next year. If the quota is too high, however, that will generate excess demand, an increase in the price and an inflow of investors, which then again will act to increase supply and reduce the price.

From practical experience, the operators of some TGC schemes have realized the fact that renewable technologies have differing marginal cost curves, and that a uniform green certificate system only facilitates the promotion of certain technologies (those with a more competitive price). Therefore they decided to differentiate between technologies by issuing differing amounts of green certificates per unit of production. More costly power stations (PV, for example) receive not one but more than one certificate for each unit of electricity produced. Obviously, these per unit TGC values also need to be laid down by the policymaker for each technology.

The role of the policymaker is quite different in a FiT scheme, as it is the feed-in tariff that they have to determine, and the market „gives‖ a quantity in return. Is the price too low, there will be no remarkable expansion in renewable capacities. The policymaker has two options: either they increase the tariff in order to motivate the investors, or they wait until technological progress ensures that renewable power plants can be operated economically without changing the initial tariff.

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If, on the contrary, prices are set too high, that might induce an investment boom of unexpected proportions. Recent years have seen several examples for this in the field of PV generation, for the most part; some countries (the Czech Republic, Spain, Germany) failed to systematically adjust their feed-in tariffs in line with the technology’s progress on its development path and, as a consequence, introduced tariffs that even obsolete (in comparison to the then state-of-the-art) technologies found encouraging. Less surprisingly, that meant extra profits for new, more mature technologies, and hence an unprecedented surge in the number of projects. This problem will be explicated on in detail in the next chapter.

The quantity of electricity eligible for the guaranteed price being unlimited in a FiT scheme, the above events put a significant burden on both the grid and the charges included in the price of electricity. Such an error is difficult to correct, as the capacities have already been deployed, they are in operation, the investors hold valid long-term purchase agreements. This is a possible case of regulatory failure, insofar as the run-up in production and the technology mix will differ from what was intended by the policymaker, and thus they will have to actively manage the situation afterwards. Therefore, in FiT schemes it is of utmost importance that the policymaker be informed and knowledgeable about the market, that they follow technological progress on a nearly day-to-day basis and that this progress be reflected in the feed-in tariffs (i.e. that they be decreased with time). A gradual reduction of the tariff ensures that later entrants are offered, instead of excessive profits, a pricing that corresponds to their own marginal cost curves (Haas et al. 2011b).

The dynamic – and even unintentional – expansion of renewable power generation capacities implies a remarkable increase in the funding needed to finance the promotion scheme. Part of the responsibility of the policymaker is, in such a situation, that the distribution of the system’s costs through the electricity bill will lay a larger burden on end consumers, and thus the price of electricity will be higher in the entire economy. And it is hardly in the interest of the policymaker to place an excessive burden on residents and businesses, as that would ultimately harm the competitiveness of their own country.

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Factors that might facilitate the avoidance of regulatory failure are an appropriate knowledge of the field, communication with the actors of the industry and an international perspective, which, through the knowledge of other countries’ tariffs and systems, might assist the policymaker in elaborating tariff recommendations for their own scheme.

3.2.6. Differentiation Based on Technology, Energy Source and