What is the Value of Feed-in Tariffs?

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1 February 13, 2015 What is the Value of Feed-in Tariffs? A Global Perspective University of Florida, Gainesville Joern Huenteler Science, Technology and Public Policy Program, Harvard University

2 What is the value of feed-in tariffs? Feed-in tariffs are the main policy instrument to support renewable electricity globally Scarce public resources and political capital are being spent on feed-in tariffs across industrialized world Many developing countries are following the example and adopt feed-in tariffs as well What is the value of these subsidies to society? Cost-efficient greenhouse gas mitigation? (not really) Jobs, exports and local manufacturing? (mixed evidence) Innovation? (yes) 1

3 If we want to mitigate climate change, we have to transform our energy system especially the way we generate electricity CO 2 emissions First UN convention on climate change Legitimate demands exist to further increase energy and electricity consumption, in view of 1 billion people in extreme poverty, and 1.3 billion without access to electricity Calls for significant technological change in the electricity sector Sources: IPCC 2007, 2014; IEA

In response, governments provide substantial subsidies for clean energy technologies Traditional policy support for clean technology research and development (R&D) Governments also provide subsidies

4 In response, governments provide substantial subsidies for clean energy technologies Traditional policy support for clean technology research and development (R&D) Governments also provide subsidies to accelerate the large-scale deployment of clean energy technologies Estimated global renewables subsidies for renewable energy Total public spending on renewable energy subsidies projected at $5.4 trillion until 2040 Dwarfs total global R&D spending for renewables in 2013: $10 bn ($5bn public + $5bn private) Source: UNEP & BNEF 2014, IEA

Feed-in tariffs for solar and wind are main policy instrument for most renewable electricity subsidies Renewables power subsidies by source in the

5 Feed-in tariffs for solar and wind are main policy instrument for most renewable electricity subsidies Renewables power subsidies by source in the top-15 countries, 2013 FITs Cumulatively, feed-in tariffs have supported 64% of wind power installations and 87% of solar PV installations Source: IEA

6 More and more developing countries are following the industrialized world and adopt feed-in tariffs as well Number of FITs worldwide Developing countries Developed countries Now >50 % of FITs in developing countries Source: UNDP-GEF,

7 GHG Mitigation: Feed-in tariffs are not the most cost-efficient way to mitigate GHG emissions at the moment /ton CO 2-eq Specific cost of German FIT Peak: 145 /ton -94% Average Mitigation Cost of German FIT (if coal is replaced) CO 2 Allowance for European Union Emission Trading System Cost are lower in China and other emerging markets, but cannot beat efficiency, fuel switching Source: Own calculations based on BDEW, 2014; Thompson-Reuters, 2013; 6

8 Industry Policy: The effect of feed-in tariffs on local employment and industry creation is ambiguous Most FIT policies have some form of industry-policy objective (job creation, local manufacturing, exports, national champions, etc.) Effect on exports appears to depend on a number of factors Pre-existence of related industries (e.g., semiconductors in the case of PV in Japan, Taiwan, Korea) Timing (early movers > late-comers) Technology (stronger effect in wind power than in PV) Market scale (weak effect in small countries / jurisdictions) In all technologies, jobs from installation appear to be higher than for fossil fuels, but jobs quickly disappear when funding dries out 7

9 Innovation: There is overwhelming evidence that feed-in tariffs fostered innovation and cost reductions in wind and solar Source: Huenteler et al

10 Feed-In Tariffs: Can and should the U.S. keep up? It depends. Lessons learned FITs have been very effective in reducing investment risks for new technologies (esp. grid-related risks, counterparty risk, price risk), especially for non-utility investors Unprecedented amounts of private investments in renewable electricity plants (esp. China, EU) Often investment came from new types of investors such as individuals, farmers, investment funds, industry, etc. (esp. Japan, Germany) New investors have disrupted existing market structures and reduced influence of fossil-fuel interests on policy process (esp. Germany, Japan, China) Through scale of created market, FITs have made long-term investments in large production facilities attractive -> economies of scale (Germany, China) Implications FITs are best suited for early commercialization of innovative technologies with cost-reduction potential, in other cases carbon pricing much more efficient FITs require market scale to have an effect on innovation and industry Transition to less costly forms of support (e.g., carbon pricing) has proven difficult for all countries so far and needs to be addressed from the start 9

11 Thank you for your attention! Joern Huenteler belfercenter.ksg.harvard.edu

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