Renewable financial support systems and cost-effectiveness

This paper analyses the performance of ‘market-based’ and ‘feed-in tariff’ systems of renewable energy procurement, and comments on the impact of different procurement systems on investment in renewable energy. The ‘market-based’ British Renewables Obligation (RO) is not more cost-effective compared to the German feed in tariff. Although the nominal rates of payment per kWh of renewable energy are higher in Germany, this is more than offset by lower wind speeds in Germany producing a lower return on investment compared to the UK. A harmonised, EU-wide market-based system, would not improve cost-effectiveness, and may serve to reduce, rather than increase, local investment in renewable energy. On the other hand, nationally based green electricity certificate systems like the RO are not intrinsically biased against locally owned or co-operative ventures. Systems are needed which encourage a diversity of investment in renewable energy from local as well as institutional sources.