Review of International Experience with Renewable Energy Obligation Support Mechanisms

Abstract

The main policy instruments currently used in the EU Member States to achieve the targets set for electricity produced from renewable energy sources are: 1) the quota obligation system; 2) the feed-in tariff system; and 3) the tendering system. The current study aims to review the experience gained with the quota obligation system. The report provides an overview of the regions where obligation systems have been implemented and contains a detailed evaluation of the performance of the obligation systems in the USA, the UK and in Sweden. The obligation systems in these countries have been evaluated based on the following criteria:• Effectiveness • Market efficiency • Certainty for the renewable energy industry • Cost effectiveness • Stakeholder support for the obligation system, and • Equity.The evaluation of international experiences with the obligation system gives rise to a mixed picture. Although an obligation in theory is effective and cost effective, it seems too early to conclude that the system delivers these promises in practice. On the one hand this is due to the limited period of implementation that makes it hard to distinguish between the direct effect of the system and some teething problems that will be solved in due time. On the other hand, the conclusion can be drawn that the obligation is a complex system, which will only function well if designed carefully. It does seem worthwhile, however, to continue monitoring the experiences with the obligation system abroad, because this will further reveal whether the system is indeed effective and cost effective in practice. In the longer term, e.g. beyond 2010, the introduction of an obligation system in the Netherlands could be considered. Finally, as the design of support schemes is being improved, it appears that the basic concepts of both the obligation system and the feed in system have been refined in such a way that the two systems are gradually converging. An important difference between the two systems however remains, namely that an obligation system relies more on market forces whereas the feed-in system is based on a greater involvement of the government. 2