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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

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