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January 31, 2013
Paul Gipe

Doubts About RPS as Renewable Policy Grow


Jordan's recent move toward feed-in tariffs adds to the controversy surrounding the role of Renewable Portfolio Standards (RPS) in future energy policy. The respected German Institute of Economics (Deutsches Institut für Wirtschaftsforschung) has thrown fuel on the fire with two provocative new studies arguing in effect that feed-in tariffs are superior at reaching aggressive renewable targets.

For example, the analysts note that a report by Yin and Powers in 2010 “is the only study (that we are aware of) that showed that RPS policies have positively impacted aggregate RES-E [renewable electricity generation] deployment. Nearly every other study has found either a negative or no connection between RPS policies and RES-E development.”

The reports in particular examine the US where RPS have been the favored renewable policy for nearly a decade. They charge that “the experience of U.S. states has shown that enacting a strong RPS does not guarantee an increase in RES-E. In some cases, RPS may be better thought of as a “floor” to RES-E investment rather than a driver of investment.”

The reports were issued in November of last year as a contribution to the policy debate in Germany about the future of the country’s renewable energy policy and the possible use of a quota model.

In Europe, RPS policies are known as quota systems or quota models. 

Germany’s success with renewable energy has been driven by its groundbreaking Renewable Energy Sources Act, the EEG in German, that uses a sophisticated system of feed-in tariffs as its key component.

The coalition government’s minister of economics, Philipp Rösler, has proposed that Germany abandon feed-in tariffs and move the country to a quota model of development. While the minister of economics is not responsible for renewable energy policy, Rösler is the leader of the neoliberal party, the FDP, the government’s junior coalition partner.

Most European countries that had RPS programs have moved away from them, including Great Britain, at onetime Europe’s loudest proponent of the approach.

Both Britain and Italy have now adopted some form of feed-in tariffs to develop renewable energy.

The new reports make a clear case in no-uncertain terms.

“The German Renewable Energy Sources Act (EEG) has proven to be an effective instrument in promoting electricity from renewable resources, and the same basic structure has been adopted by a large number of other countries. The support provided for in the EEG consists particularly of a guaranteed fixed feed-in tariff or, since 2012, an optional market premium which is almost identical to the fixed feed-in tariff. As an alternative to the EEG model, there is some discussion about a quota mechanism that would oblige energy companies to supply a certain percentage of their power from renewable energies. However, switching to a system of this type would not resolve the problems that are currently being debated which are mainly not directly related to the EEG, for example, in the field of network regulation, electricity market design, and the promotion of innovation. Rather the introduction of a quota model would result in a higher investment risk and, in turn, an increase in promotion costs which are ultimately borne by the end user. Furthermore, due to a lack of differentiation between technology sectors, the introduction of a quota system would also be associated with the risk that the long-term goals for use of renewable energies would not be attained and electricity costs for consumers would not fall but rise further. Thus, a radical change in the support system is not recommended. It would make more sense to step up efforts to develop the current model with a focus on cost reduction and system integration.”

During the past 30 years, renewable energy as a percent of electricity supply in the US has increased less than the margin of error: from 12.3% to 12.4%.

 


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