Paying for Renewable Energy: TLC at the Right Price - Achieving Scale Through Efficient Policy Design

Investors want Transparency, Longevity and Certainty - "TLC" in order to deploy capital. There needs to be a transparent process that gives a reasonably certain rate of return over a long timeframe. This should reduce the cost of capital. However, public support is required for this to endure, so cost and price effectiveness are crucial. Building on Deutsche Bank Climate Change Advisors'(DBCCA) earlier work on German feed-in tariffs (FiTs) and their Global Climate Change Policy Tracker, this report further looks at how renewable energy policy regimes can achieve an optimal mix of TLC at the "right price." In the current economic environment, this could be seen as job creation with energy security and climate protection at the most efficient cost. In doing this, DBCCA examines five FiT regimes and set out what makes them advanced while still delivering enough TLC to achieve scale. Advanced features include cost/price discovery processes and the flexibility to respond to markets, while still operating within a transparent framework. Germany in particular stands out and is able to demonstrate many benefits that come with a strong volume response while being responsive to significant market developments. In a North American context, the province of Ontario has many features of a strong policy design. For contrast, DBCCA then analyzes the US renewable policy framework in the context of US electricity markets. The structure is complex, fragmented and lacks many elements of TLC. It attempts to reach for a "pure market," lowest cost solution using Renewable Portfolio Standards (RPS) and Renewable Energy Certificates (RECs), interacting with Federal and other incentives. This can deliver results only if long term hedgeable REC markets emerge as Federal incentives also start expiring in 2010.
Deutsche Bank Climate Change Advisors
December, 2009