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Feed-in Tariffs--The Economic Case

January 1, 2005
Paul Gipe

Comparison of Feed in Tariff, Quota and Auction Mechanisms to Support Wind Power Development


 

The draft report is available at http://www.econ.cam.ac.uk/electricity/publications/wp/ep70.pdf.

This study reaffirms numerous other papers on the topic, but is one of only a handfull from Great Britain itself. For others, see Catherine Mitchell, University of Warwick, Centre for Management Under Regulation.

Most important are the conclusions that tendering systems may not result in the contracted capacity and that an RPS with ROCs can result in higher costs than Feed Laws. Data on prices in Germany and Great Britain ". . . does suggest that the price paid for wind energy is already lower in Germany than in the UK, and that this is likely to remain the case over the medium term."

The study noted that only 30% of contracted capacity under Britain's tendering system was actually installed, ". . . although the government awarded contracts for 3270 MW of DNC in England and Wales between 1990 and 1998, figures for September 2003 show a DNC of only 960 MW." The results are quite similar to those from France's Eole program where only 70 MW of 300 MW contracted were actually built.

Moreover, the price bid under such tendering systems may not be representative of true costs because so little of contracted capacity is built. "It is thus questionable whether a competitive tendering process, which places such emphasis on reductions on the price paid for wind energy, is the most appropriate means of encouraging an expansion in capacity", say the authors.

The study concludes that the oft-stated reason for Britain's poor installation rate of wind energy due to planning hurdles was incorrect and to the contrary the reason was an insufficient price to pay for profitable projects.


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