Economic Analysis of Incentives and Sustainability of Renewable Energy Support Mechanisms
15:00 - 16:30
Several factors including the growing demand for energy to fuel economic development, the need for diversifying into environmentally sustainable supply sources and energy security, and climate change considerations have contributed to the need for accelerating public and private investments in renewable energy. Many countries have designed incentive structures, primary to attract private investments in renewables, especially for some renewables which are not least cost and involve incremental costs. There is however much debate on the cost effectiveness – from an economic and financial perspective – of the different incentives in promoting renewable and how to address issues related with regulatory design and affordability.
The presentation is based on country case studies for Vietnam, Indonesia, Sri Lanka, South Africa, Tanzania, Egypt, Brazil and Turkey which were selected to provide a representative sample of countries according to a taxonomy of energy endowment (ranging from coal, natural gas and hydro based systems) and different policy incentives (from feed-in tariff to auctions). An analytical framework provides the underpinnings of the case studies, and provides the background for the principal research hypothesis of this report, which is: better attention to the principles of economic analysis and market efficiency leads to more sustainable and effective policies.
The main lessons emerging from the case studies on the design of renewable energy support mechanisms are clear and inescapable: successful renewable energy policies
- will only be effective once the state-owned utilities who are the buyers of grid-connected renewable energy are themselves in good financial health (in all of the case study countries, the power utilities are under financial duress)
- need to be grounded in economic analysis and the application of market principles to ensure economic efficiency
- require a sustainable, equitable and transparent recovery of incremental costs.