There are generally two policy designs to promote renewable power production. The first is floor prices for power sold to the grid (see-in rates). Here, the market decides what the volume is; if the floor price is high enough, a lot is invested, but if the floor price is too low, little or nothing is invested.
The second type of policy does not set the price, but rather the volume in quotas or requests for proposals.
When quotas are imposed, utility companies are obligated to get a certain percentage of their power sales from renewable sources. Power generators get certificates to demonstrate that they have sold a certain unit of renewable power (such as a certificate for 10,000kWh). Companies that produce more than the quota requires can sell certificates to those who do not produce enough. The price for the certificates depends on supply and demand. Quotas require a regulatory body, which monitors the issuing of certificates and imposes penalties if quotas are not fulfilled.
In requests for proposals, the policy stipulates a target volume, such as additional annual wind power production of 300GWh. Investors can then submit proposals for some of that volume, and the least expensive bidders get the contracts.
Proponents of such policies consider them more efficient than feed-in rates because they are allegedly more competitive, and only the cheapest projects go online.
Are they right? Without a doubt, they are in theory. But in practice, volume-based policies have more often discouraged than encouraged the growth of renewables.
While Denmark and Spain have had a grand success expanding their renewables markets with floor prices, the UK, Ireland and France did not go anywhere with their quota policies, which is why they have all switched to feed-in rates.
Although we cannot compare these two policy types in detail here, a decade of data clearly shows that countries with floor prices (feed-in rates) installed several times more wind power in 2004, for instance, than countries with volume targets.
The German state of Baden-WQrttemberg – roughly the size of Connecticut and with similar solar conditions – alone had 1074MW of solar online at the end of 2008, producing around 1 billion kilowatt-hours of electricity. In comparison, the US had a total installed PV capacity of only 800MW at the end of 2008, a full 25 per cent less than tiny Baden-WQrttemberg – a fact that the US solar sector likes to hide by claiming: ‘Installed solar power capacity in the US rose by 17 per cent to 8775MW in 2008.’49 However, that figure includes all kinds of solar, including pool heating, etc., none of which is included in the figure for Baden- WQrttemberg.
Figure 11.13 Quota systems and feed-in rates: Which is more effective?
Source: Bundesverband WindEnergie
11.12 Solar thermal arrays