Feed-in Tariffs in Turmoil
70 Pages Posted: 13 Jun 2014 Last revised: 21 Jul 2014
Date Written: April 23, 2014
Feed-in tariffs are extremely popular. Ubiquitous in Europe and across the globe, studies often suggest that feed-in tariffs (“FITs”) tend to outperform renewable portfolio standards (“RPSs”). The accepted logic is that this is because FITs offer certainty RPSs do not. Under a feed-in tariff, renewables producers know that all of their power will be purchased and at what price, while under an RPS, facilities have a guarantee on neither point. Feed-in tariffs, however, create a more complex policy ecology than is often acknowledged. While the FIT’s core advantage is certainty, the laws also inevitably erode the very stability they initially create. This is because FITs require recurring adjustment, and the more effective they are, the more modification they need. The end result is that FITs often foment turmoil, not stability. This Article challenges conventional thinking about feed-in tariffs, by showing the tumult they can create. Using three case studies of prominent feed-in tariffs that either have been abandoned or are surrounded by increasing debate — Germany’s, Spain’s, and South Korea’s — the Article shows both the policy turbulence feed-in tariffs can cause and why that matters. It offers a more nuanced view of FITs than is often offered. In turn, it extracts four key lessons lawmakers should keep in mind when designing FITs: (1) the laws tend to be effective, but (2) internal modification of the laws’ design is unavoidable, (3) feed-in tariffs often impact the legal and physical systems around them in unforeseen ways, and (4) FITs’ unpredictability must be carefully managed.
Keywords: Feed-in tariff (FIT), Renewable energy, Renewable energy support mechanisms, Clean energy, Policy design, Sustainability, Green growth, Climate change
JEL Classification: K10, K20, K23, K29, K32, Q20, Q28, Q38, Q40, Q41, Q42, Q48, L94, O31, O32
Suggested Citation: Suggested Citation