Countries developed their renewable electricity promotion systems according to their differing characteristics, conditions and regulatory preferences. The dominance of FiT schemes was apparent right from the beginning, the reason for which is probably that it creates a more secure investment atmosphere in this relatively new industry. Although the first support systems had already appeared in the end of the 80s (Portugal: 1988; Netherlands: 1989; Germany: 1990) (Ringel, 2006), what is more, some sources even say German renewables policies date back as far as 1974 (Lauber-
Mez, 2006), it was after the liberalization of energy markets34, i.e. the beginning of
the 2000s, that the sector and, hence, the incentives became truly significant.
In 2001, six out of the fifteen EU member states operated a TGC system: Austria, Belgium, Denmark, Italy, Sweden and the scheme’s most prominent advocate, the United Kingdom. Several of these, however, also had FiT models in place. Those
with a TGC system only were Italy and the United Kingdom. With the accession of a
34
The positive effects of the liberalization of electricity markets on the growth of renewable energies is probably and primarily a consequence of the drop in capital costs induced by the market opening (Szabó et.al., 2008).
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number of new member states, the proportions have changed, yet the dominance of the FiT model is still unquestionable; three out of every four states operate a feed-in tariff scheme exclusively. „Mixed‖ systems are quite common, as well. The figure below shows the distribution of incentives today:
Figure 7: Promotion systems in the EU member states
(1/a – Fixed feed-in tariff; 1/b – Feed-in tariff with a price premium; 2 – Quota obligation/green certificates)
Source: Re-Shaping, 2011.p.35.
If Green Premium systems are defined as a sub-type of FiT, then, as it can be seen from the figure, the number of countries that employ a feed-in tariff system only is twenty. There is one single country that has neither one of the two, but only uses tax allowances as an incentive: Malta. Six countries (Italy, England, Poland, Romania, Sweden and Belgium) have a green certificate scheme in place, yet two of them (Italy, England) also operate a feed-in tariff program. These two are exactly the countries that were the primary advocates of green certificates initially, but the last couple of years have had to witness their partial transition to a price-based regulation. The example of Italy supports our earlier note on the relatively low maturity of solar panels, since even though they were a proponent of green certificates originally, they now have a pure feed-in tariff system in place for this very technology, while use a mixed FiT/TGC scheme for all others (investors are
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entitled to choose from the two). In 2010, England introduced a feed-in tariff program for small-capacity power plants, because previously, their share of renewables always fell short of the target (Haas et. al. 2011a). Accordingly, only four
member states are left that exclusively use a TGC system. This trend might be
interpreted as the self-criticism of the TGC system.
One may form an opinion on the success of the various incentives by looking at how the share of renewables in electricity consumption has changed between 1999 and
2010 in the countries considered:
Country 1999 2010 Change % Change 2010/1999 Incentive in place
Austria 71.4% 61.4% -10.0% -14% FIT Belgium 1.0% 6.8% 5.8% 580% FZB Denmark 12.1% 33.1% 21.0% 174% FIT/GPR Finland 26.3% 26.5% 0.2% 1% FIT/GPR France 16.3% 14.5% -1.8% -11% FIT Germany 5.2% 16.9% 11.7% 225% FIT Greece 9.5% 16.7% 7.2% 76% FIT Ireland 5.1% 12.8% 7.7% 151% FIT Italy 16.7% 22.2% 5.5% 33% FZB/FIT Luxembourg 1.9% 3.1% 1.2% 63% FIT Netherlands 2.4% 9.3% 6.9% 288% FIT/GPR Portugal 20.4% 50.0% 29.6% 145% FIT Spain 12.8% 33.1% 20.3% 159% FIT/GPR Sweden 50.7% 54.5% 3.8% 7% FZB
United Kingdom 2.5% 6.7% 4.2% 168% FZB/FIT
Table 4: Share of renewable energies in electricity production in the EU-15
Source: Eurostat, 2012. p. 76, with additions by the author
Taking the figures from 1999 and 2010, I calculated their difference (Change %), which tells us how many percentage points the share of renewables in electricity production increased/decreased in the 11 years in question. The next column contains the quotient of the two values diminished by one, showing the increase in the share of renewables, expressed as a percentage of the initial value. The success of an incentive should not simply be equated with the numerical value of the increase alone, but one should also take into consideration the initial value, that is, how many times the „result‖ exceeds the „base‖. It is clearly not indifferent whether a 5 percentage point increase is added to a base value of 20% or 5% – as what it means is that the incentive achieved a „mere‖ 25% vs. a 100% increase, respectively. The last column informs about the support system of the given country – not only the
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present one, but all that had been employed during the 11 years,35 with the more
dominant one coming first (if there is/was more than one).
Eight states delivered extraordinary performance in terms of growth rate (near 150% and above): Belgium, Denmark, Germany, Ireland, Netherlands, Portugal, United Kingdom. Six of them basically had FiT schemes, thus there were only two TGC countries that scored so well: Belgium and the United Kingdom. If, however, we also incorporate the actual numerical growth of renewable shares (fourth column) in the analysis, we can see that in spite of their high growth rates, the actual increase in the share of renewables achieved by these two countries was 5.8 percentage points and 4.2 percentage points, respectively. Countries that achieved an increase of 10 percentage points or more in their share of renewables are highlighted in green in the table – their regulations are, with no exception, dominated by the FiT system. Thus based on the percentage point increases in values, it is FiT systems, and even more specifically, the promotion schemes of Denmark, Germany, Portugal and Spain that appear to be most successful, to be an example to follow.
It is the experiences of Germany and England that the pieces of the literature on the
comparison and analysis of the two types of incentives most frequently evaluate36; it
is these two countries, if any, that can be considered the „model examples‖ of the two systems.
The most important criticism and deficiencies of the English (TGC) regulation can be summarized as follows (Lipp, 2007) (Haas et al., 2011b):
– The initial system introduced in 1989 (Non-Fossil Fuel Obligation) primarily aimed at reducing the use of fossil energy sources, which in its first years basically meant the support of nuclear energy production; the possibility to meet one’s obligations through renewable energies was only introduced in 2002, along with renaming the system Renewable Obligation.
– Because of the country’s access to fossil energy sources within its own borders, no special priority was given to increasing the share of renewables.
35 Based on (Nemzeti Fejlesztési Minisztérium, 2011) and (Regionális Energiagazdasági
Kutatóközpont, 2012).
36
See for example (Fouquet-Johansson, 2008), (Wüstenhagen-Bilharz, 2006), (Agnolucci, 2006), (Mitchell et al., 2006), (Lipp, 2007), (Smith, 2007), (Menanteau et al., 2003).
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– The policymaker did not lay down long-term objectives and preferences, and hence the regulation kept changing rather frequently.
– The TGC system was not differentiated by technology, therefore it only facilitated the growth of the most cost-efficient technologies, and thus substantial progress was limited to wind turbines and the utilization of biomass – but then again, even those results were weak given the country’s favorable conditions.
– Due to the small number of projects and the lack of differentiation, green certificates were held by a relatively limited circle of investors, the trade of which was, consequently, subject to individual agreements for the most part. This acted to deepen the uncertainty of price forecasts, raised investor risk and increased the administrative costs associated with the system’s operation. – Because of the small number of participants and in order to reduce risk, green
power was often sold under long-term contracts. Which means that the model – theoretically built upon prices being determined in the marketplace, through competition – did not actually function as intended.
– Fines for non-compliance with the mandatory quota were too low.
– Banking, that is, the „storage‖ of certificates to be redeemed in the next year, was not permitted. Therefore it was reasonable for the investors to suspect that the closer they get to the quota, the lower the price of the certificates will be, which caused them to be not interested in growth ab ovo.
– The country did not simplify the licensing process in order to accelerate progress.
– As a consequence of all the above, production usually remained below the targeted annual green quota.
– Both the growth rate and the diversity of renewable generation capacities lagged far behind those of Germany and Denmark.
– The only reason why the actual achievements falling short of renewable energy targets did not put meeting the country’s greenhouse gas emissions limitation commitment in jeopardy was the growth of nuclear energy in the meantime.
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The factors of the successful operation of the German model were (Menanteau et
al., 2003) (Haas et al., 2011b):
– The policymaker has been highly committed to the promotion of renewable energy production right from the beginning (1991), and they strived to
convey the idea to the public, as well37.
– Feed-in tariffs were guaranteed for 15 to 20 years in the German FiT scheme, which reduced investor risk significantly.
– Tariffs were differentiated not only by technology, but even by location, as well, to adjust to varying local conditions.
– Tariffs were differentiated not only by technology, but by startup date, as well, and they were degressive over time. With such a tariff structure, communicated 5-10 years in advance, innovation became an absolute must, and the opportunities to make extra profits were limited, as well.
– Predisclosed feed-in tariffs were typically not changed afterwards, that is, the policymaker created an atmosphere where plans/forecasts could be relied upon.
– The „shield‖ erected around green energies, the exclusion of market competition stimulated and, at the same time, created favorable conditions for innovation, which allowed for the German equipment manufacturing base to evolve and to gain a very strong foothold in certain industries (e.g. the manufacturing of wind turbines).
– Continuous innovation enabled technologies to reduce their unit costs.
– The appropriate differentiation of feed-in tariffs by technology allowed for a wider spectrum of technologies to grow and develop, with relatively large participation from small investors, which further improved the social acceptance of the program.
– With significant effort, the policymaker kept simplifying and shortening the licensing procedure for renewable projects.
37
These efforts were greatly intensified after the Fukushima disaster, as Germany decided on the gradual phasing out of its nuclear power plants, opening up further opportunities for renewable energies.
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– The administrative costs of the system are low, as is investor risk – accordingly, the German model not only managed to achieve far more remarkable results, but did so at a lower cost than green certificate systems (Lipp, 2007); (Fouquet-Johansson, 2008).
In summary of the above, we can conclude that as of now, it is feed-in tariff schemes that appear to be more successful in the promotion of renewable energies in the member states of the EU – a statement underpinned by the growing number of FiT advocates among member states, their superiority in performance and also the fact that certain TGC countries decided to introduce FiT-elements to their systems.