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Feed-in tariffs waste resources and make it harder to meet Europe’s renewable energy goals

Feed-in tariffs waste resources and make it harder to meet Europe’s renewable energy goals according to a guest post by Omar Abbosh on the Financial Times Energysource blog, at least in the absence of a single, integrated electric power market in Europe.  Abbosh, a managing director at Accenture, notes that generous feed-in tariffs have led Germany to build a lot of solar and wind power capacity, but renewable energy output would be significantly higher had those wind power turbines been built in the U.K. and the solar power systems installed in Spain.

I’m putting a slightly more negative spin on the feed-in tariff issue than Abbosh himself does (in part as a reaction to the “unequivocally superior” comment discussed earlier), so I’ll give Abbosh the final word:

To reach our renewable targets more cost effectively, Europe must implement a consistent policy framework to drive renewable generation to those areas with greatest natural advantage. Options include centrally coordinated carbon contracts and feed in tariffs.

Options include a feed in tariff? Well, he is right that a Europe-wide feed in tariff would likely do a better job than more localized feed in tariffs of locating renewable energy resources where they would produce more output.

Of course, one goal of renewable power policy in Europe is to reduce greenhouse gas emissions, and locating wind and solar where they produce the most output doesn’t necessarily imply the largest reduction in greenhouse gas emissions.  It is possible, for example, that solar power generation in Germany offsets mostly coal-fired plant output while in Spain it would offset natural gas fired generation.  I’m speculating, so my illustration may be in-apt, but the point remains.  Apparently it is harder to distort the market in just the right way than it looks.

(Oh, I forgot that I was giving Abbosh the last word.


Now back to his post:)

However, we advocate the introduction of European Renewable Energy Certificates (RECs).

Under a European RECs system, each nation would agree to levels of electricity generation from renewables, based on the availability of the natural resource in question.  Certificates would be allocated to renewables generators, who would then sell them on an EU-wide trading platform to suppliers unable to meet their obligations. …  As a market-based approach, European RECs would be compatible with the EU’s existing Energy Trading System (ETS).

… Only by replacing distorting national subsides with a coordinated and consistent policy can Europe achieve its renewables targets and continue to lead the climate change debate.

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