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As I noted inthis story, feed-in tariffs are not a subsidy, they are a different regulatory regime than spot market prices which allow for revenue stability for fixed cost (i.e. investment intensive) technologies and thus permit investment in something other than gas-fired plants.

As noted, gas-fired plants will look safer and more profitable, even if they are more expensive on average in the end (because their price will be driven over time by gas prices, but producers will just ride that wave, whereas as fixed price producer has to make a bet upon investment on where the price of gas will be over the next 20 years or more).

Additionally, fixed price technologies like wind and nuclear benefit from the merit-order effect, i.e. they tend to pull prices down when they are in production, because they replace high marginal cost producers with low marginal cost production and thus bring spot prices down (and this is actually more visible with a partial use source like wind than with a base load one like nuclear) - and that price- dampening effect can be measured and should be counted against the apparent cost of a feed-in regime.

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Jan 6th, 2012 at 04:01:00 AM EST
Here
As I noted inthis story, feed-in tariffs are not a subsidy, they are a different regulatory regime than spot market prices which allow for revenue stability for fixed cost (i.e. investment intensive) technologies and thus permit investment in something other than gas-fired plants.
you essentially agree with Thomas:
The main tool used to clean up electricity generation lately has been to guarantee certain minimum price levels for power generated with specific technologies. These feedin tarrifs have varied from "not that much more than typical production costs for baseload" (wind) to "insanely high" (solar), but they have all been aimed at getting specific green generating technologies manufactured and deployed, and forcing utilities to buy the power they produce, in the hope that this would help transform electricity production into a clean, reliable grid.
The key charge levelled by Thomas against feed-in tariffs is
There is a number of problems, however. These tarrifs have gotten quite considerable amounts of renewable capacity built, but because the tarrifs were set per technology, rather than simply being a fixed rate for any low-carbon generation, they amounted to politicians dictating technology choice. Badly.


tens of millions of people stand to see their lives ruined because the bureaucrats at the ECB don't understand introductory economics -- Dean Baker
by Migeru (migeru at eurotrib dot com) on Fri Jan 6th, 2012 at 04:21:13 AM EST
[ Parent ]
Well, yes, I don't disagree with Thomas on a number of things!

But putting it as a "minimum" price is a bit tendentious when it's a fixed price - it's also a maximum price, and the embedded option in that cap may end up being hugely valuable to the public at large in a few years time - we know how much offshore wind power from an existing plant will cost to produce in 20 years' tim, but we have no idea whatsoever what power from a gas-fired power plant will cost then. That certainty has value.

Fundamentally, feed-in tariffs match the revenue profile to the (also largely fixed) cost profile of capital-intensive technologies. As such, feed-in tariffs are also the most appropriate regime for nuclear plants - and indeed, that's where the UK government is heading towards (disguised as "contracts for differences" which just add some needless complexity which the utilities can make easy money from, and provide a fig leaf that this is not a "socialist" regulatory regime...).

As to Thomas' complaint on differentiation, I wrote about it above, and would also add that politics is about choice and there's no reason why we shouldn't favor some technologies over others for non-energy reasons (gas emissions is one reason, jobs can be another, regional development policies can be another, etc...

Wind power

by Jerome a Paris (etg@eurotrib.com) on Fri Jan 6th, 2012 at 04:34:54 AM EST
[ Parent ]
Jerome a Paris:
we know how much offshore wind power from an existing plant will cost to produce in 20 years' tim, but we have no idea whatsoever what power from a gas-fired power plant will cost then. That certainty has value.

In fact perhaps the prime objective of public policy (apart from sustainability and greenhouse gas emissions reduction) is to improve the visibility, predictability and volatility of future economic and social costs of energy - a bit like an insurance policy against unpredictable future costs. What's wrong with the state buying insurance against future price volatility?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Jan 9th, 2012 at 08:01:12 PM EST
[ Parent ]
The fact that if they buy it by building wind farms they won't be buying it from the City of London. Duh.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Jan 9th, 2012 at 10:05:10 PM EST
[ Parent ]

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