This is the second entry in a series about fossil fuels subsidies and renewable energy feed in tariffs (the first entry is here). Greenpeace climate and energy campaigner Tobias Boßmann looks at the difference between the two - and there are quite a lot.
What is the difference between so-called “Feed-in-Tariffs” for energy from renewable energy sources and the subsidies for power plants fueled by dirty fuels like nuclear and coal?
In both cases, investments in specific technologies are funded in order to cover (partly) the costs and to give hereby an incentive to invest in this technology. BUT the purpose of both mechanisms is different:
Under the Feed-in-Tariff (FiT) system every owner of a renewable power plant (e.g. wind turbine, photovoltaic panel, biogas plant) gets a certain fixed remuneration for every kWh of electricity produced. The exact level of remuneration depends on different factors such as the technology, the size of the plant, the geographical location, the year of initial operation etc. But it is higher than the general market price for which the electricity could be sold. The total amount of FiT paid for the renewable energy is added on top of the “normal” electricity costs and equally spread over all consumers, according to their specific consumption .
The FiT-system sets incentives to invest in a technology that is new and that is not competitive yet . It reduces the risk of investing in this new technology since it guarantees a steady and elevated compensation for the electricity produced. That permits planning reliability, an assured revenue and compensates for the high investment costs. In this way an increased use of the technology is encouraged, triggering an increase in demand, hence an increase in production capacity, resulting in decreasing costs due to economies of scale and further research in this technology.
Existing FiT systems in different countries show that those effects are achieved, permitting an adjustment of the FiT to lower remunerations for future installations (e.g. in Germany, Spain …). In the long-run, the FiT make the costs for the technology drop to a competitive level, making the FiT itself unnecessary . So for instance, the first generation wind turbines will get a lot; a few years later the next, newer, cheaper generation (which is the new standard product) will get less, the next generation even less - and so on and so on until they don’t need any FiT any more, because they are cheap enough – and now: competitive.
And that is the main difference compared to subsidies that are paid lifelong for proven technologies that are not economically competitive even though the industries have been propped up with subsidies for decades . Until now, nuclear is not only not competitive but costs are actually rising. Additional innovations like CCS don’t deserve any kind of subsidy or FiT either, since they are only an end of pipe add-on to technologies that have already largely benefitted from subsidies.
In the end, FiT can also be considered as a compensation for the effect that the costs for the external effects of fossil and nuclear fossils (such as CO2 emissions and their long term effects, fossil fuel extraction) are not considered in the total cost calculation and therefor causing an unfair market situation, disadvantaging renewable energy sources.
At the launch of the Energy [R]evolution in July 2010, even Energy Commissioner Oettinger argued for a harmonized, EU-wide Feed-in-Tariff for a further development of renewable energy sources. Let’s see, if the European Commission as such has recognized this need, too…
Photo: Solar Gen volunteers install solar panels in Switzerland. © Greenpeace / Mayk Wendt