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THE FEASIBILITY OF THE USE OF FEED-IN TARIFFS (FITs) AS AN INCENTIVE MECHANISM TO PROMOTE THE USE OF RENEWABLE ENERGY IN THE CARIBBEAN Garvin Alexander.

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Presentation on theme: "THE FEASIBILITY OF THE USE OF FEED-IN TARIFFS (FITs) AS AN INCENTIVE MECHANISM TO PROMOTE THE USE OF RENEWABLE ENERGY IN THE CARIBBEAN Garvin Alexander."— Presentation transcript:

1 THE FEASIBILITY OF THE USE OF FEED-IN TARIFFS (FITs) AS AN INCENTIVE MECHANISM TO PROMOTE THE USE OF RENEWABLE ENERGY IN THE CARIBBEAN Garvin Alexander Assistant Executive Director Technical Operations REGULATED INDUSTRIES COMMISSION Presentation at 8 th Annual Conference of the Organisation of Caribbean Utility Regulators (OOCUR) Ocho Rios, Jamaica 1

2 OUTLINE OF PRESENTATION Introduction Introduction What are Feed-in Tariffs (FITs)? What are Feed-in Tariffs (FITs)? Examples of Application of FIT Examples of Application of FIT UK FIT Scheme – some detailsUK FIT Scheme – some details Characteristics of Feed-in Tariff Policies Characteristics of Feed-in Tariff Policies Advantages/ DisadvantagesAdvantages/ Disadvantages Some FIT policy design/ implementation issuesSome FIT policy design/ implementation issues Comparison Calculations Comparison Calculations Other Incentives Other Incentives Conclusion and Recommendations Conclusion and Recommendations 2

3 INTRODUCTION Throughout the world, countries are attempting to increase their usage of renewable energy. Throughout the world, countries are attempting to increase their usage of renewable energy. The main reasons for this thrust are environmental concerns and energy security issues. The main reasons for this thrust are environmental concerns and energy security issues. 3

4 Good reasons to be concerned! 4

5 Destruction of diving and coral reefs, and ocean habitat, affecting tourism related income. Destruction of diving and coral reefs, and ocean habitat, affecting tourism related income. In Tobago, heating caused major bleaching of the coral reef in 2005.In Tobago, heating caused major bleaching of the coral reef in Hotter than usual dry seasons, causing Hotter than usual dry seasons, causing Increase in air quality respiratory illnesses due to travelling Sahara dust as a result of stronger shears in atmospheric winds;Increase in air quality respiratory illnesses due to travelling Sahara dust as a result of stronger shears in atmospheric winds; Increases in infectious diseases;Increases in infectious diseases; Increased use of energy – A/C units, water pumps, etc.Increased use of energy – A/C units, water pumps, etc. 5

6 The Existing T&T Environment In Trinidad & Tobago, there has been limited development in the use of RE generation, primarily because of: the availability of fossil fuels as a natural resource (oil, natural gas) » contributes to low electricity tariffs » consequently serves as a huge economic barrier. 6

7 The Existing T&T Environment Finite reserves of natural gas – recent Ryder-Scott report (July 2009) indicated that there are about 12 years of proven natural Gas reserves. Finite reserves of natural gas – recent Ryder-Scott report (July 2009) indicated that there are about 12 years of proven natural Gas reserves. Cost of RE technology still relatively high. Cost of RE technology still relatively high. Government buy-in and support needed to increase use of RE technology as a mitigation strategy against climate change. Government buy-in and support needed to increase use of RE technology as a mitigation strategy against climate change. 7

8 Reasons for Caribbean countries to pursue RE implementation Concern for the environment: climate change, GHG emissions; Concern for the environment: climate change, GHG emissions; Reducing costs of RE generation systems; Reducing costs of RE generation systems; Promotion of energy security in the Caribbean region; Promotion of energy security in the Caribbean region; Rapidly developing carbon credits market; Rapidly developing carbon credits market; High insolation levels in the Caribbean for solar technology; High insolation levels in the Caribbean for solar technology; In keeping with CARICOM Energy Policy. In keeping with CARICOM Energy Policy. 8

9 Good reasons for T&T to pursue RE implementation Competitive advantages for T&T in manufacturing Competitive advantages for T&T in manufacturing Assets- land space, cheap energy;Assets- land space, cheap energy; Disadvantage – relatively high labour costs;Disadvantage – relatively high labour costs; Business opportunities can be created through the manufacture and export of RE technology. Business opportunities can be created through the manufacture and export of RE technology. Concerns about proven levels of natural gas reserves. Concerns about proven levels of natural gas reserves. 9

10 What is a Feed-In Tariff? A Feed-in tariff (FIT) is a policy mechanism designed to encourage the adoption of renewable energy generation. A Feed-in tariff (FIT) is a policy mechanism designed to encourage the adoption of renewable energy generation. FITs are the most widely used policy in the world for accelerating renewable energy (RE) deployment. FITs are the most widely used policy in the world for accelerating renewable energy (RE) deployment. Criteria for judging the success of FITs depend on the policy goals of the jurisdiction. Criteria for judging the success of FITs depend on the policy goals of the jurisdiction. 10

11 Examples of Implemented Net Metering / FIT schemes Germany is considered as the pioneer country in the development and application of FIT policies, though the concept originated in California, USA. Germany is considered as the pioneer country in the development and application of FIT policies, though the concept originated in California, USA. Many Members of the European Union including Spain, the Netherlands, Portugal. Many Members of the European Union including Spain, the Netherlands, Portugal. Japan, South Africa, Canada and many states in the USA have also successfully implemented FIT policies. Japan, South Africa, Canada and many states in the USA have also successfully implemented FIT policies. UK has recently introduced FIT policy in April 2010 for small-scale, low carbon electricity generation. UK has recently introduced FIT policy in April 2010 for small-scale, low carbon electricity generation. 11

12 UK FIT Scheme FIT scheme was introduced by the UK government as an environmental programme to promote widespread development/ installation of small- scale renewable and low carbon electricity generation technologies. FIT scheme was introduced by the UK government as an environmental programme to promote widespread development/ installation of small- scale renewable and low carbon electricity generation technologies. The scheme is administrated by OFGEM on behalf of the UK Government. The scheme is administrated by OFGEM on behalf of the UK Government. 12

13 UK FIT Scheme The scheme is funded as follows: All electricity suppliers licensed by OFGEM, regardless of whether they participate in the FIT scheme, are required to make payments into a levelization fund established by OFGEM. The fund is then redistributed to electricity suppliers that participate in the programme, that have made more payments to the RE generators than they would be required to by their market share contribution. 13

14 Successes of UK FIT Scheme 2771 installations were registered between April and June installations were registered between April and June As at September 2010, a total of 9,350 RE generation systems have been registered to participate in the scheme since its start date on 1 st April this year. As at September 2010, a total of 9,350 RE generation systems have been registered to participate in the scheme since its start date on 1 st April this year. 14

15 Characteristics of Feed-In Tariff Policies FIT policies typically include three key provisions: (1) guaranteed access to the grid; (2) stable, long-term purchase agreements (typically, about years); and (3) payment levels based on the costs of RE generation 15

16 Advantages of FIT Policies have a measurable impact on RE generation and capacity; have a measurable impact on RE generation and capacity; encourage technologies at different stages of maturity, including emerging ones; encourage technologies at different stages of maturity, including emerging ones; can provide a purchase price to renewable energy generators that is not linked to avoided costs; can provide a purchase price to renewable energy generators that is not linked to avoided costs; 16

17 Advantages of FIT Policies distribute costs and development benefits equitably across geographic areas; distribute costs and development benefits equitably across geographic areas; settle uncertainties related to grid access and interconnection for large systems; settle uncertainties related to grid access and interconnection for large systems; offer a secure and stable market for investors. offer a secure and stable market for investors. 17

18 Disadvantages FITs may exclude lower-income individuals from participating; FITs may exclude lower-income individuals from participating; It can be challenging to incorporate FITs within existing policy frameworks and regulatory environments; It can be challenging to incorporate FITs within existing policy frameworks and regulatory environments; FITs are not “market-oriented” FITs are not “market-oriented” FITs may distort wholesale electricity market prices. FITs may distort wholesale electricity market prices. 18

19 FIT Policy Design – Payment Differentiation FIT payments can be differentiated by FIT payments can be differentiated by technology type; technology type; the project size; the project size; the resource quality; or the resource quality; or the specific location of the project. the specific location of the project. 19

20 FIT Policy Design – Implementation Issues Some of the key issues to be considered are: Eligibility of the project;Eligibility of the project; Role of the Utility;Role of the Utility; Contract duration;Contract duration; Whether Caps are needed in the scheme;Whether Caps are needed in the scheme; in the case of larger systems –in the case of larger systems – Load Forecasting Load Forecasting Grid access protocols Grid access protocols 20

21 FIT Policy Design – Implementation Issues Because large-scale commercial RE generation systems may not be feasible in the Caribbean, the scheme should be designed so as to encourage small-scale RE generation. Because large-scale commercial RE generation systems may not be feasible in the Caribbean, the scheme should be designed so as to encourage small-scale RE generation. 21

22 Comparison with other Caribbean countries Calculations were done to determine what would be the initial level of feed-in tariff to encourage investment in solar PV generation; Calculations were done to determine what would be the initial level of feed-in tariff to encourage investment in solar PV generation; Countries compared include Belize, Barbados, Dominica, Grenada, Jamaica, Suriname and Trinidad & Tobago Countries compared include Belize, Barbados, Dominica, Grenada, Jamaica, Suriname and Trinidad & Tobago 22

23 Assumptions Domestic installation using 400 kWh monthly; Domestic installation using 400 kWh monthly; Cost of solar PV panel – US$4.00/Wp installed; Cost of solar PV panel – US$4.00/Wp installed; Initial level of feed-in tariff set to encourage investment; Initial level of feed-in tariff set to encourage investment; 23

24 BELIZEDOMINICAGRENADAT&T TOTAL COST ESTIMATE FOR PV SYSTEM (US$) 12, DAILY AVERAGE CONSUMPTION OF RESIDENTIAL HOUSEHOLD (kWh) AVERAGE MONTHLY BILL AVERAGE ANNUAL BILL ASSUMPTION OF 40% OF ENERGY SUPPLIED FROM SOLAR PV, TOTAL ANNUAL BILL BECOMES PAYBACK PERIOD BASED ON COST OF PV SYSTEM (WITHOUT FEED-IN TARIFF) (YEARS) AMOUNT OF ENERGY PER DAY SUPPLIED TO GRID (kWh) 10 Feed-in Tariff - US$ per kWh Annual Payment to customer TOTAL ANNUAL PAYBACK/SAVING PAYBACK PERIOD BASED ON COST OF PV SYSTEM & FEED-IN TARIFF (YEARS)

25 The results indicate… In T&T and Suriname, an initially high Feed-in tariff level needs to be set in order to reduce the payback period to encourage investors In T&T and Suriname, an initially high Feed-in tariff level needs to be set in order to reduce the payback period to encourage investors This FIT level would need to be subsidized, since it is much higher than the cost of generation by the respective country’s utility (certainly in T&T) This FIT level would need to be subsidized, since it is much higher than the cost of generation by the respective country’s utility (certainly in T&T) 25

26 The results indicate… If such a scheme is introduced in the other countries, the payback period is significantly shorter, and favours investment. In this case, the avoided cost of generation may be used to fund the scheme. If such a scheme is introduced in the other countries, the payback period is significantly shorter, and favours investment. In this case, the avoided cost of generation may be used to fund the scheme. As the FIT level is raised, the project viability improves. Some improvement in viability will also occur as electricity tariffs traditionally increase. 26

27 In T&T From data collected, T&TEC’s cost of purchasing generation is calculated as approximately US$0.038/kWh If kWp solar PV panels were installed in T&T, and 50% of the output reached the grid, this would result in 25 MWh/day of avoided generation at an annual cost to T&TEC of US$346,750.00, or TT$2,210, The avoided cost of new generation to the utility could also be factored in here. 27

28 In T&T These “savings” could be utilized to fund a portion of the FIT in the agreement between the utility and the RE generator. The remainder could be subsidized by the Government in its effort to promote the increased use of RE technology 28

29 How can Governments be encouraged? The implementation of RE generation technology provides an opportunity for Caribbean countries to play their part in mitigating the effects of climate change and global warming. The implementation of RE generation technology provides an opportunity for Caribbean countries to play their part in mitigating the effects of climate change and global warming. RE provides a means of gaining tradable carbon credits through avoided generation using fossil fuels. RE provides a means of gaining tradable carbon credits through avoided generation using fossil fuels. Comparative costing needs to be done with respect to carbon capture and sequestration in the electricity generation sector as opposed to RE generation. Comparative costing needs to be done with respect to carbon capture and sequestration in the electricity generation sector as opposed to RE generation. 29

30 Adaptation of the UK Scheme In the UK, there are a number of utilities which are used to fund the FIT scheme. In the Caribbean, however, each country has a single utility responsible for transmission and distribution – the customer interface. 30

31 Adaptation of the UK Scheme An adaptation of the UK scheme for the Caribbean could involve CARILEC utilities coming together to create an environment similar to the UK. An adaptation of the UK scheme for the Caribbean could involve CARILEC utilities coming together to create an environment similar to the UK. While all utilities may not participate, they could contribute to a collective fund, (administrated by OOCUR?), which could be used to fund an FIT scheme in the Caribbean. While all utilities may not participate, they could contribute to a collective fund, (administrated by OOCUR?), which could be used to fund an FIT scheme in the Caribbean. 31

32 Other Forms of Incentives Rebates on the purchase of RE equipment; Rebates on the purchase of RE equipment; Accelerated depreciation on RE equipment; Accelerated depreciation on RE equipment; Funding for specific projects; Funding for specific projects; RE Clean Bonds; RE Clean Bonds; Establishment of a Sustainable energy trust fund. Establishment of a Sustainable energy trust fund. 32

33 Conclusion and Recommendations FITs can serve to encourage the use of RE generation here in the Caribbean by improving the conditions for investment in the technology. FITs can serve to encourage the use of RE generation here in the Caribbean by improving the conditions for investment in the technology. For T&T, FIT payments should be initially set at a higher level (than current avoided costs of generation), partially funded by the utility, with subsidies provided by Government. For T&T, FIT payments should be initially set at a higher level (than current avoided costs of generation), partially funded by the utility, with subsidies provided by Government. 33

34 Conclusion and Recommendations External agency/corporation funding can be realized for RE projects. External agency/corporation funding can be realized for RE projects. Rebates on the cost of PV systems may be offered. Rebates on the cost of PV systems may be offered. An income tax allowance for persons who have installed PV generation systems may be introduced. An income tax allowance for persons who have installed PV generation systems may be introduced. 34

35 Conclusion and Recommendations Remember…. we should be doing this, not purely for economic reasons, but to make our contribution towards saving the environment and the world!! Remember…. we should be doing this, not purely for economic reasons, but to make our contribution towards saving the environment and the world!! 35

36 THANK YOU Any Questions? 36


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