Renewable Energy Policies

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Kathryn Cooper:

"When using policy to drive a shift to renewables, several key policies working together are the best strategy to level the playing field and stimulate investment in new technologies.

I distilled the best national initiatives discussed at the conference into a policy primer:

Renewable Energy Targets

Renewable energy targets are the foundation for any renewable energy strategy. Policy targets for renewable energy exist in at least 66 countries worldwide (including all 27 European Union countries). Binding targets, embedded in legislation, have been most effective for Germany.

Most national targets set goals for shares of total electricity production. There is a broad spectrum of national ambition, as targets for renewables range from 2 percent to 78 percent (typically falling between 5–30 percent). New Zealand, which currently draws 65% of its electricity from renewable hydroelectric power, has adopted a target of 90% renewable energy by 2025, and is poised to be the first country to achieve 100% of its electrical energy from renewable sources. New targets adopted by the European Commission in 2007 include 20 percent of final energy and 10 percent of transport fuels from renewable sources by 2020. And China’s national target of 15 percent of primary energy from renewable resources by 2020 includes individual technology targets as well: 300 GW of hydro, 30 GW of wind, 30 GW of biomass, and 1.8 GW of solar PV.

Power Generation Promotion Policies

Once a national target is set, effective policy can breathe life into the goal. At least 60 countries currently use policy to promote renewable power generation. Typically a number of policies are used in concert to create fertile ground for the growth of renewables. Of those in place, the "feed in law" (also known as the feed in tariff) is the most common and successful.

Feed in Law/Tariffs

Feed in laws level the energy playing field and create fair market participation for emerging renewable technologies. A fitting analogy might be mandating the use of public funds to pay for the construction and tolls on carpooling lanes in order to encourage ride sharing. Feed in tariffs legally oblige utility companies to buy electricity from renewable energy producers at a premium rate, usually over a guaranteed period, making the installation of renewable energy systems a secure investment. The extra cost is shared among all energy users, reducing it to a barely noticeable level.

Using feed in tariff policies, Germany increased its wind power energy from 3,000 MW (roughly enough to energize 180,000 North American homes) to 23,000 MW (1.4 million North American homes). Based on the strength of this policy, Germany generates 14% of its energy needs--a total of 31,000 MW--from renewable energy. This share has increased 1 percent each year for the past decade.

In Germany the typical consumer pays $1.97 USD/month (1.25 Euros/month) to invest in the renewable energy infrastructure. In 2007, an average household used 3,500 kWk/a and typically paid $95 USD/month for electricity. At its highest level, the renewable surcharge in 2007 accounted for barely 5% of the total household electricity price.

A good feed-in law can overcome many barriers to market entry for smaller, community based renewable energy producers. For example, the German Renewable Energy Sources Act and regulations

• give renewables priority access to the grid • oblige grid operators to purchase electricity from renewable sources • set the price for renewable electricity for long, fixed periods • allow limitless amounts of renewable energy feeding into the grid • encourage specific technologies and scales of installed capacity through differential pricing.

The United States was the first country to enact a national feed-in law, in 1978, but the policy lasted only briefly. However, on June 25, 2008, U.S. Representative Jay Inslee (D-WA) tabled in the US House of Representatives a proposed feed in tariff bill called the Renewable Energy Jobs and Security Act. The bill has three components: a guarantee to interconnect renewables to the grid with uniform standards; a mandatory purchase requirement through long-term contracts with fixed tariffs; and rate recovery through a regional cost-sharing and systems benefit charge.

Renewable Portfolio Standards (RPS)

RPS’s (also referred to as a renewable obligations or quota policy) outline the renewable power share requirements for a region, country, state or province, and require that a minimum percentage of generation sold or capacity installed be provided by renewable energy. Australia, the United Kingdom, Sweden, Belgium and Japan are among those with national RPS's.

Capital Subsidies, Grants or Rebates

Some national and local governments have established renewable energy funds used to directly finance investments, provide low-interest loans, or facilitate markets in other ways, for example through research, education and standards. The United Kingdom created a $5 M grant fund to support investment in renewables and energy efficiency projects and another $10 M program to build commercial scale anaerobic digestors. This is a far cry from the $38.8 B USD invested in Germany by the public and private sector in 2007. Previous UK grant schemes have typically been oversubscribed and have done comparatively little to stimulate the introduction of renewable energy at the domestic level.

Sales tax, energy tax, excise tax or VAT reduction

Tax incentives and credits are also common ways of providing financial support. These systems have been an effective augment to the feed in tariff /laws, but would be ineffective if used alone." (