Uncertainty for investments in RETs?

In recent weeks, when the spotlight was shone on the lessons learnt one year after the Fukushima disaster, the state of renewable energy (RE) and specifically of feed-in tariff (FiT) policies have become a changing and closely observed topic of discussion. Despite its proven advantages, FiT policies are still confronted by obstacles. Several key countries normally known for their leadership in renewable energy are putting the brakes on while countries new to the market implement enabling political frameworks to accelerate the uptake of renewable energies.

In Germany for instance, the world leader in FiT policies, the government recently agreed to drastically cut solar PV tariffs (20.2% to 29%) followed by a monthly rather than biannual degression rate (1% per month). It also decided to pay for only 80% to 90 % of the produced electricity sent to the grid. This limit in the amount of electricity sold is contrary to one of the key success factors of FiT: the purchase obligation of generated electricity. Moreover, these tariff cuts – purportedly a reaction to the PV installation boom – have already impacted major PV companies such as Q-cell, which is declaring bankruptcy. The latter is not an isolated example but rather an illustration of what could be the debacle of a major part of the industry.

As expected, this decision has triggered a storm of debate from many stakeholders within the RE industry due to the lack of solid and clear arguments presented by the government. More importantly and on a global level, this hasty move may affect Germany’s reputation in the world of RE and Germany’s renewable energy policy, and will undoubtedly be a key issue in the upcoming federal elections.

We at the WFC campaign for FiT as ‘best policy’ to accelerate the uptake of RE, and have pushed for the implementation of such policies in several countries around the world, including the U.K., South Africa, and Australia. The key to a best policy that accelerates the deployment of RE, we argue, is to build investor confidence in the country’s industry. Consequently, the primary restraint seen recently has been the continued changes in the policy environment and the discontinuity of political commitments.

Spain is another leader in RE and will temporarily stop awarding new FiT contracts starting January 2013. This move will prevent proponents of new cogeneration, renewable energy and waste-to-energy plants from receiving contracts to sell their electricity to the grid, which in turn will put the RE industry on stand-by until a new decision is made by the government. As with the reaction in Germany, there have been strong critics in the Spanish RE industry arguing that Spain is undermining its credibility as a stable country in which to invest.

This series of decisions carries a strong risk of affecting the green job market, which is supported by and related to RE; of building uncertainty for small and medium businesses; as well as jeopardizing existing and future investments in the sector. Most importantly, these government decisions reflect the resistance of the conventional energy industry and can prove to be harmful for the momentum major environmental issues are currently gaining if the key countries do not set the right example.

However, as alarming as this may seem, the current situation does not speak for the state of FiT around the world. It is worth mentioning that Japan, former world leader in PV production, recently announced that it will finally introduce FiTs for solar, wind, biomass, geothermal and small hydropower on the first of July, as part of the Renewable Energy Law passed in August 2011. Even though this decision may have been accelerated by the catastrophe in March 2011, pushing the country to rely more heavily on renewable energy to shoulder its energy load, Japan can be seen as a model for its quick shift in paradigm.

Let us hope that this dynamic framework helps to build a stronger understanding of renewable energy technology (RET) policies and to promote future just decisions instead of impeding their evolution.

Wednesday, April 4th, 2012

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