Feed in tarriffs and not subsidy is the way forward for carbon free future

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Implications: The article in power-technology.com, describes the experience in Germany of an innovative feed in tariffs as one of the well tried measures, consequent to which, there has been a healthy growth in renewable energy projects, to the extent that Germany is even considering phasing out nuclear by 2021. Feed in tariff is linked to performance and results unlike other measures like capital subsidies or tax incentives. It is easier to administer and simple unlike carbon credits which can become complex involving costly expenses like consultant surveys,analysis, approvals, monitoring or management etc and can become daunting a constraint to small generators. The feed in tariff has helped numerous small generators who play an important role in balancing the energy supply from central generating stations with consequent reduction in transmission and distribution losses, and avoiding costly network upgrades. This pioneering effort in Germany has now been adopted in over 30 countries.

Analysis: Generous subsidies in Spain will expire soon after encouraging the installation of 1,000MW in new solar plants this year. That has made Spain the world’s biggest market after Germany, where the government expects 1,350MW of new solar plants to go on line in 2008

Rising oil costs had given a strong push to projects like wind and solar and allowed firms to justify many energy conservation projects.

However the lowering of oil prices with the concurrent credit crisis and global economic meltdown it is becoming difficult to kick start projects which on today’s costs are often not economically justifiable. Other factors which have added to the woes are the steep drop in traded prices for carbon credits.

Conventional accounting ignores ‘real costs’ like future energy bills, let alone associated carbon emissions and other environmental degradation.
Day-to-day this is how companies have to operate but it is apparently no basis for investment decisions.Feed in tariff actually provides a mechanism to take care of what is conventionally known to utility managers as “market failure”.

37,000GWh of energy in 2007 from renewables in Germany is indeed a significant 20 % of the total energy demand and besides it is a sustainable proportion of Germany’s energy, even allowing the Government to phase out nuclear power generation by 2021.

By Himadri Banerji