Feed-In Tariffs MeisterConsultants

8/3/2019 Feed-In Tariffs MeisterConsultants

http://slidepdf.com/reader/full/feed-in-tariffs-meisterconsultants 1/34

11

Global Energy Transfer Feed-in Tariffs:

The GET FiT Program

Prepared by:

Christina Hanley, Meister Consultants Group



222

A. Diffusion of Feed-in Tariffs Worldwide

B. The GET FiT Program

C. Next Steps for GET FiT

The presentation outline



333

Defining feed-in tariffs (FITs)

Most prevalent national RE policy worldwide

Driven a significant proportion of global RE capacity during past decade

FITs supported: 75% of global PV capacity and 45% of global wind

capacity through 2008

Feed-in tariffs are long-term, guaranteed purchaseagreements for green electricity at a price that can provideproject developers a reasonable return on investment.



44444

Investors essentially look for 3 key policy drivers:

FITs: Popular with investors for its consistent policyframework to mobilize capital at fair cost

DB Climate Change Advisors has concluded that feed-in tariffs canefficiently deliver TLC at the right price, and can be adapted to the

developing world context.Source: DBCCA Analysis, 2009



55

FIT countries 1990

Countries with state FIT policy

Countries with FIT policy

Source: REN21, Renewables 2010 Global Status Report



66

FIT countries 1995






77

FIT countries 2000






88

FIT countries 2005






99

FIT countries 2010






101010




The presentation outline



Why? Drivers

• CO2: Atmospheric stabilization(450 ppm? 350 ppm?)

• Attract capital: $500 billion in(mostly private) investment

required annually by 2020, upfrom $162 billion today

• Energy access: 1.5 billionwithout electricity

11



Investment in new markets

Source: Bloomberg New Energy Finance, 2010

New project finance investment into developing

countries, 2004 – 2009, $bn

New project finance investment into developing

countries by sector, 2008 & 2009, $bn

$0bn

$5bn

$10bn

$15bn

$20bn

$25bn

$30bn

2004 2005 2006 2007 2008 2009

China

Brazil

Af rica & Middle East

India

Non-EU Europe

$0bn

$5bn

$10bn

$15bn

$20bn

$25bn

$30bn

C h i n a

B r a z i l

A f r i c a

&

M

E

I n d i a

N o n - E U

E u r o p e

C h i n a

B r a z i l

A f r i c a

&

M

E

I n d i a

N o n - E U

E u r o p e

2008 2009

Marine & Small HydroGeothermalSolarBiomass & WasteBiofuelsWind

12



13

Global feed-in tariff funds proposed by:

§ Ad Hoc Working Group on Long-term Cooperative Action

§ UN Department of Economic and Social Affairs

§ European Renewable Energy Council and Greenpeace

§ World Future Council

§ World Wind Energy Association

§ International Renewable Energy Alliance

§ Project Catalyst

§ European Commission Joint Research Centre…



How GET FiT came to be…

January 2010:§ DBCCA presented the idea of a global feed-in tariff program to the United NationsSecretary General’s Advisory Group on Energy and Climate Change (AGECC) at theWorld Future Energy Summit Abu Dhabi

Mid-January – Mid March:

§ Interviewed +160 experts from the renewable energy, international development,NGO, and financial communities

§ Two rounds of feedback from experts and tested concept with advisors to AGECC

April:

§Concept presented at United Nations AGECC meeting

§ Released green paper titled: GET FiT Program: Global Energy Transfer Feed-inTariffs for Developing Countries (www.dbcca.com)

14

http://www.dbcca.com/

http://www.dbcca.com/



Renewable Energy Project Risks

“Perceived risk, more than profit, is key to policy effectiveness & efficiency”

– International Energy Agency

• Regulatory risk

• Credit / counterparty risk

• Contracting risk

• Contract price risk• Market risk

• Revenue risk

• Political / sovereign risk

• Construction risk

• Currency risk

• Technology risk

Some risks can be minimized or mitigatedthrough policy design

Other risks are mitigated throughalternative insurance and hedgingstrategies (e.g. political risk insurance)

Sources: MCG Research, 2010;

Deacon Harbor Financial, 2010

15



16

• Renewable energy scale-up and energy access

• Catalyze supply / demand for private sectorfinancing of renewable energy projects

• Support national renewable energy policies thatmitigate investment risks and attract significantprivate capital as part of broader, low-carbongrowth plans

• Support on-grid and off-grid development byadapting international renewable energy policybest practices to the developing country context

• Bridge for renewable energy to reach grid parity:• Gaining experience with renewable

resources prior to break-even scenarios• Adjusting incentive rates to reflect lower

prices over time

Economically

viableinvestments

Demand forfinancing

Supply offinancing

Economically

viableinvestments

Demand forfinancing

Supply offinancing

How GET FiT aims to support developing countries



17

Three pillars of the GET FiT program

Fund for renewableenergy incentives

Technicalassistance

GET

FiT

Fund for renewableenergy incentives

Risk mitigationstrategies

Technicalassistance

GET

FiT



18

Targeted GET FiT Support GET FiT Solution

Advanced Feed-in TariffsProvide supporting payments for above-market premiums forrenewably produced energy through advanced feed-in tariffdesigns that target on-grid, commercialized, renewableresources

Mini-grids for Off-grid Applications

Adapt FiT design principles to create performance-basedincentives for decentralized multi-user energy generation,especially mini-grids, in rural areas with limited gridinfrastructure

Lighthouse Power PurchaseAgreements (PPAs)

Use power purchase agreements as a pre-FiT regulatorymechanism in countries that face grid integration constraints,or for technologies that have a limited in-country track record

Types of projects GET FiT would address



Premium payments – Structure

• Full, long-term (20 year)premium

• Establish upfront fund?

• Bonds backed by donors?

• Partial, long-term premium• How to determine burden

sharing?

• Progress towards nationalgoals vs. economicindicators?

• Full, short-term premiumYears

$.05

$.08

$0.12

19



202020




The Presentation Outline



Where could international support come from?

Cash on top of FIT payments

Incentives to reduce the amount of FIT needed

Upfront grants, policy-based loans, international funds

Concessional (low-interest) loans, upfront grants, guarantees

21



Funding sources?New sources of funds

nCopenhagen Green Climate Fund(“fast start funds“)

n Bonds secured by donor countrypledges and/or carbon markets

n IMF Special Drawing Rightsquantitative easing

New sources of funds

nCopenhagen Green Climate Fund(“fast start funds“)

n Bonds secured by donor countrypledges and/or carbon markets

n IMF Special Drawing Rightsquantitative easing

Conventional funds

n

Contributions from multi-lateral banksn Contributions from national donors

n Contributions from existinginternational funds

n Burden sharing with client countries

Conventional funds

n

Contributions from multi-lateral banksn Contributions from national donors

n Contributions from existinginternational funds

n Burden sharing with client countries

Revenues from international climatepolicies (current and proposed)

n Emissions auction revenues

– National auctions

– Assigned amount unit (AAU)

auctionsn Carbon tax revenues

n Transport levies

Revenues from international climatepolicies (current and proposed)

n Emissions auction revenues

– National auctions

– Assigned amount unit (AAU)

auctionsn Carbon tax revenues

n Transport levies

n COP-16?

22



Where does it live?

Bilateral relationships?

Existing multi-lateral

organizations?

New structures?

Private sector alliance?

23



Next steps for GET FiT

• GET FiT Plus paper & Cancun workshop

• Characterize developing country FITs using common analyticalframework

• Build “decision tree” for design based on national conditions

• Create a feed-in tariff technical assistance facility

• Identify funding strategy and secure funding commitments

• Identify near-term pilot projects (e.g. South Africa)

24



252525252525

Meister Consultants Group, Inc.

98 N. Washington StreetBoston, MA 02114

T +1.617.209.1980

[email protected]

www.mc-group.com

Christina Hanley

Thank you!

mailto:[email protected]

http://www.mc-group.com/

http://www.mc-group.com/

mailto:[email protected]



26

Best practice advanced FiT for developing countries

FIT Design Features Key Factors TLC at the Right Price

Policy & Economic Framework "Linkage" to mandates & targets Yes

Core Elements

Eligible technologies All renewables eligible

Specified tariff by technology Yes

Standard offer/ guaranteed payment Yes

Interconnection Yes

Payment term15-25 yrs5-10 yrs

Supply & Demand Must take YesWho operates (most common) Open to all

Fixed Structure & Adjustment

How to set price

Fixed vs. variable price Adjusted for inflation

Generation cost vs. avoided cost Generation

IRR target Yes

How to adjust price

Degression Yes - ending at LCOE breakeven

Periodic review Yes

Grid parity target Yes

Caps

Project size cap Depends on context

Policy capBased on transmission constraints and/or

ratepayer impact

Policy interactions Eligible for other incentives Yes - eligible to take choice

Streamlining Transaction costs minimized Yes

CDM linkageDoes the national FiT policy take CDM into

account?Yes



27

GET FiT would provide premium payments passed throughnational governments and utilities to independent powerproducers (IPPs)

GET FiTProgram

GET FiTProgram

IndependentPower

Producer

Independent

PowerProducer

NationalGovernment

NationalGovernmentUtilityUtility

Debt

Providers

Debt

Providers

RiskInsurance(private &

public)

RiskInsurance

(private &public)

RatepayersRatepayers

EquityInvestors

EquityInvestors

Pays avoided

cost rate

Pays portion ofpremiumPays portion of

premium

Guaranteespayments to

IPP, if required

InternationalSponsor


Guarantees

Payelectricitybills

Guaranteestotal payment, if

possible

Insures againstpolitical risks

Providefinancing

Passes throughpremium payment

Premium payment

Legend:

Market price payments

Guarantees

Financing

GET FiTProgram

GET FiTProgram

IndependentPower

Producer

Independent

PowerProducer

NationalGovernment

NationalGovernmentUtilityUtility

Debt

Providers

Debt

Providers

RiskInsurance(private &

public)

RiskInsurance

(private &public)

RatepayersRatepayers

EquityInvestors

EquityInvestors

Pays avoided

cost rate

Pays portion ofpremiumPays portion of

premium

Guaranteespayments to

IPP, if required



Guarantees

Payelectricitybills

Guaranteestotal payment, if

possible

Insures againstpolitical risks

Providefinancing

Passes throughpremium payment

Premium payment

Legend:

Market price payments

Guarantees

Financing



28

GET FiT can share policy cost burden with the client countrythrough evaluation of progress towards national goals

2030Time

%

National RE target

P r o j e c t e

d g r o w t h

= e. g. 8 %

Gap = policy failure

GET FiT participation inpremium funding

A c c e l e

r a t e d g

r o w t h

20%

8%

GET FiT participates in fundingthe premium above nationaltarget

Determining projectedmarket growth

Setting thenational target

Identifying size andcause of the gap



29

GET FiT addresses the specific needs of developing countries

Source: DBCCA analysis, 2010.

Strengthening Existing Grids Rural Electrification

Large, grid-connectedrenewable energy

projects in national orsupranational grids

Grid-connectedrenewable energy

projects inregional grids

Multi-user decentralizedsystems (e.g. mini-grids)

Current sources ofelectricity

• Broad generation mixcomprising also "cheap"technologies like hydro andcoal

• Often substantial diesel andcrude oil generator capacity

• Small scale diesel generators onsingle user level

• No access to utility-managedgrids

LCOE based on currentgeneration mix

• <$0.15/kWh• End user prices often

subsidized

• $0.20-0.40/kWh• $0.15-0.20/kWh• End user prices often

subsidized

• $0.35-1.50/kWh

Abatement potential(per kWh and total)

MediumHigh

Medium-to-highMedium-to-high

HighMedium

Cost competitiveness

of renewable energy Low Medium High

Social/economic impact Low-to-medium Low-to-medium High

Note: LCOE data calculated on the basis of simplified assumptions regarding diesel generator efficiency and current diesel prices as well as publicly available data for other technologies.



30

FIT Design Features Key Factors TLC at the Right Price Thailand

Policy & EconomicFramework "Linkage" to mandates & targets Yes Yes

Core Elements

Eligible technologiesAppropriate technologies

targeted Biomass, Biogas, Waste, Wind, PV, Micro-hydro

Specified tariff by technology Yes Yes

Standard offer/ guaranteedpayment Yes Yes

Interconnection Yes Yes

Payment term - allBiomass only

15-25yrs5-10 yrs

10 Years7 Years

Supply & Demand Must take Yes Yes

Who operates Private entities Open to all

Fixed Structure & Adjustment

How to Set Price

Fixed vs. variable pricePeg to inflation for

generators with high O&M* Fixed

Generation cost vs. avoided cost Generation Generation

IRR target Yes Yes

How to Adjust Price Degression Yes No

Periodic review YesNo-but will review if having a “significant” impact on

ratepayers

Grid parity target Yes No

Applying TLC criteria to developing countries: Thailand

Source: MCG Research, 2010



31

FIT DesignFeatures Key Factors TLC at the Right Price Thailand

Caps

Project size cap

Volume Cap

Depends on context

Based on ratepayer impactor transmission constraints

Yes, 10 MW

No

Policy Interactions Eligible for other incentives Yes - eligible to take choice Yes, tax holiday and tax credits

Electricity MarketStructure IPPs eligible for participation Yes Yes, PURPA-like laws in place

Transparency Developers/owners able tonavigate the process Yes Yes

Social AdderBonus paid for local projectsupport and involvement --- Yes

Eligible for CDMAbility for projects to receivecarbon offsets in addition to FiT Yes Yes, up to individual developer/owner to pursue

StreamliningTransaction costs minimized Yes

Yes, developers/owners only need to interact withthe two distribution utilities


Applying TLC criteria to developing countries: Thailand



3232323232

Low-risk feed-in tariff design features (slide 1 of 2)Design issue Options Low-risk option

Eligibility • All generator types eligible• Eligibility restricted to specific technologies,

sizes, ownership types, etc.

N/A

Interconnection and purchaserequirements

• Guaranteed interconnection• Priority interconnection• Guaranteed purchase• Priority dispatch

All, where applicable

Contracts • No contracts• Standard contracts• Contracts negotiated on a case-by-case basis

Standard contracts

Contract length • Short-term (1-7yrs)• Medium-term (8-14yrs)• Long-term (15-20yrs)

Long-term, matched to service lifeto extent possible

Rate setting basis • Generation cost-based• Value-based (e.g. avoided costs)

Generation cost based

Payment structure • Fixed price schedule• Premium payment• Spot market gap payment

Fixed price schedule

Tariff differentiation • Differentiated• Undifferentiated

N/A




3333333333

Low-risk feed-in tariff design features (slide 2 of 2)

Design issue Options Low-risk option

Purchasing entity • Utility• Transmission system operator• Government entity

Creditworthy counterparty

Commodities purchased • Electricity• RECs• Emissions credits• Capacity

Commodities bundled and purchased for areasonable rate of return

Amount purchased • 100%•

Partial purchase (e.g. only net excess)

100%

Adjusting the payment • Periodic review• Automatic adjustment after set period of

time• Automatic adjustment triggered by

capacity• Adjustment based on prior market

performance

Transparent, scheduled, and clearly definedadjustment mechanism

Caps and queuing • Cap on capacity• Cap on generation• Cap on ratepayer impact

No cap preferable. If cap in place, it should

be transparent, clearly defined, and stable,with clear queuing procedures




3434343434

Feed-in tariffs are in ~54 countries; designs andimpact vary widely

European Union Non-EU Europeand Middle East

Africa Americas Asia andAustralasia

Austria LatviaBulgaria LithuaniaCyprus LuxembourgCzech Rep. MaltaDenmark NetherlandsEstonia Portugal

France Slovak Rep.Finland SloveniaGermany SpainGreece UKHungaryIrelandItaly

CroatiaIsraelMacedoniaSerbiaSwitzerlandTurkey

Ukraine

AlgeriaKenyaMauritiusSouth AfricaTanzaniaUganda

ArgentinaCanada*EcuadorNicaraguaUnited States*Dominican Rep.

HondurasPeru

Australia*ChinaIndia*MongoliaPakistanPhilippines

South KoreaSri LankaTaiwanThailand

Note: In countries marked with a (*), feed-in tariffs have been implemented at regional level. Source: Sawin and Martinot, 2010; MCG Research, 2010

Feed-In Tariffs MeisterConsultants

Documents

Transcript of Feed-In Tariffs MeisterConsultants