Differentiation Based on Technology, Energy Source and Other Factors

One of the advantages of FiT schemes is that they allow for defining different tariffs for differing technologies/types of power plant, while in a TGC scheme, one unit of green energy generated (1 MWh) is usually worth one green certificate, regardless of technology.

The TGC system in England, for example, only yielded noteworthy results in the utilization of wind power. The reason is that at the time, wind generation was the most economical, the cheapest technology (Fouquet-Johansson, 2008). Policymakers also realized this fact, thus in 2008 they suggested that the different technologies should, according to their level of maturity, receive different quantities of green

certificates19 per unit of production in order to give a chance for the technologies that

were not marketable under the uniform certificate scheme to take off.

Differentiation by technology is a new element to the TGC system, therefore its effects have not yet been examined and discussed in the literature. Results will definitely be worth studying, as this step represents a shift from the original TGC logic towards the FiT scheme, and thus it may be able to mitigate TGC systems’ deficiencies in effectiveness.

FiT schemes, on the other hand, are highly suitable for differentiation, as feed-in tariffs can be set for almost any arbitrary number of categories.

19

The green certificate scheme introduced in Romania also assigns different amounts of green certificates to the various technologies. Power stations that are more capital intensive and that have to incur raw material costs (e.g. biogas, biomass) are issued more certificates than the ones that are less capital intensive and that utilize „free‖ raw materials (e.g. wind turbines).

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Typical bases for differentiation are (Infrapont, 2010, p. 28): – technology;

– special qualities (e.g. location); – startup date;

– acknowledged payback period (i.e. the term of the guaranteed purchase agreement);

– time elapsed since installation; – scale of operation.

Of course, further items can be added to the list according to the specific circumstances and preferences of the country in question. It is apparent that a FiT scheme can take into consideration the maturity of technologies and the changes they undergo with time, that is: the expectations of the market. Thus the estimated marginal cost curves can almost completely be translated into tariffs. Differentiation by location prevents capacities from being installed in the most favorable locations only, as a higher price may counterbalance the disadvantages arising from the less favorable characteristics of certain less attractive locations (Infrapont, 2010).

FiT schemes can not only differentiate based on various energetic aspects to adjust to power plants’ specific attributes or the country’s energy policy objectives – any other aspect, be it social, economic, etc., can be incorporated into the system (e.g.: employment effect, development of underdeveloped areas).

3.2.7. Possibility of Influencing the Regulation

In regard to the analysis of the two promotion schemes of interest to us, several sources emphasize the possibility of the regulation being influenced/manipulated. In their article, Fouquet-Johansson draw atteniton to the risk that in a TGC scheme, large green energy producers that quasi-dominate the market (if there are any) may influence the price of green certificates through their own supply thereof. For such actors can restrict the supply of certificates by simply putting their investments on hold. That starts a temporary increase in the price of certificates, which makes the

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market more attractive to new investors, and thus generates new investments. The new power plants having commenced operation in hopes of high certificate prices – i.e. high revenues –, the dominant market actor will now flood the market with its own certificates, generating excess supply and hence a price drop. In a couple months’ time, the small investors, due to the unmanageable cash-flow problems the low prices induced, will start to sell their capacities, which will most likely end up in the hands of the big players – which scenario, all in all, constitutes an enormous risk for smaller investors (Fouquet-Johansson, 2008, p. 4083).

Fouquet-Johansson also emphasize that feed-in tariff schemes exclude the possibility of such manipulation, as each investor and project owner can sell the green energy they produce for the very same fixed (and hence non-manipulable) price.

There is another aspect to the possibility of manipulation, as well: „An important characteristic of any regulatory instrument is the extent to which it can be influenced by the affected interest groups‖ (Infrapont , 2010, p. 42). The study identifies three groups of stakeholders:

Traditional (fossil and nuclear) power producers, who are basically not interested in the promotion of renewable energies at all, as it is their own capacities that are being crowded out of the market by renewables.

Those obligated to purchase renewable electricity are (partially) not interested in renewables, either, as the operation of green power plants means a priority dispatch obligation, extra workload and additional transmission regulation duties for them.

The third group is that of renewable energy producers, who are, obviously, interested in the highest possible share of renewables and the highest possible price for green energies. Members of this group do not always take the same stance, either, the individual technologies often have their own interest

groups20 which strive to promote the interests of their own electricity

generation method.

20 _{Organizing associations and pressure groups along technologies is quite typical in Hungary, as well:}

in addition to the Hungarian Association of Renewable Energy Sources, we also have a Hungarian Windpower Energy Association, a Hungarian Solar Energy Society, a Hungarian Biomass Association, a Hungarian Biogas Association , etc.

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The actual power of renewable energy incentives may largely depend on the comparative influence, size, lobbying power and social support of these three interest groups (Infrapont, 2010).

The chance for influencing the concept itself of the regulation and its details is bigger in the case of FiT schemes, while as far as already operating systems are concerned, it is TGC schemes that leave more space to manipulation through the market power of the individual interest groups.