Feed-In Tariffs : SERN interviews Miguel Mendonça, from the World Future Council

Our partner SERN, the Sustainable Energy Regulation Network, has interviewed Miguel Mendonça (World Future Council Research Manager) on feed-in tariffs. Xavier Lemaire, who already provided a webinar about off-grid regulation, carried out the interview.

Miguel Mendoça is the author of “Feed-in Tariffs – accelerating the deployment of renewable energy”. He has co-written a new book on decarbonising the global economy entitled: “A Renewable World — Energy, Ecology, Equality” (with Herbert Girardet), and another book on renewable energy policy entitled “Powering the Green Economy: The Feed-in Tariff Handbook” (with David Jacobs and Benjamin K. Soya cool).

Please see the REEGLE Website for a full transcript of the interview (it is also available as a pdf in French on the SERN website).

Please see the below for selected highlights:

More than 40 countries have adopted the feed-in tariff or a kind of feed-in tariff. Why is it so successful?

I think because it’s simple: anybody can get involved in it; it is not funded from any national budget, in general. So the system can’t be cut if a new Government comes in, or there is a recession or major pressure on public finances. You know the tariffs are guaranteed in law and the rate of return is so good that they present a very compelling business case for investors. They can see exactly how much money they will receive per kilowatt hour for 20 years. Therefore, this provides a secure, legally guaranteed investment case to any potential investors. It could be a business, it could be a school, it could be a homeowner. This is the point: anybody can get involved and because it is very administratively simple, the system itself is very cost effective. You only get paid for the energy that you actually generate. Some other systems will give you the grants to cover the up-front capital cost of say a solar system, or there would be general grants for microgeneration, but that doesn’t guarantee that you would even install it. That allows you to buy the equipment, but it is a very different thing from saying: “instead of me giving you money for buying this stuff, I will pay you for every kWh you generate”. That means that you have to find the best equipment that you can and make sure it is set up properly; you have to take care of all the details to make sure that your system is the most efficient, in terms of both the technology and the way that it is set up.

So, back to the question for developing countries: is it useful to adopt a  feed-in tariff now or just to wait five years and finally get solar or wind at a very low cost?

Well, it is a very good question and I think it all comes down to how it could be funded. If you could find a relatively painless way of funding it then I would say it is a good thing because people develop the technical and administrative experience necessary to begin to integrate renewable energy into the grid. This is something that you cannot learn overnight, that’s my sense… I am not into the technical side of things so much, but evidently [things] take time to develop and you need the expertise, you need structures in place institutionally, you need people who know what they are doing and how to make this happen. So, in 5 years, yes, the technology might be cheap but [without a feed-in tariff] there is no development of skills, there is no capacity building in that country when it comes to dealing with renewable energy. It seems to me it would be prudent to begin to develop that and to say this is what we want to do; we are going to develop our capacity to be able to do it more effectively over time and things are going to be cheaper and in a way, you are setting out a vision for the country [...]. You can say: “Ok this is the budget that we have and we can really invite renewable developments up to this point.” If you are an investor, it would make you nervous because you want to be sure that if you are going to start to get a foothold in a country, you are not going to arrive and set out your installation and then find that after one year of operation [there is] no more money and no one can afford your electrons because they are too expensive. On the other hand it is useful to say: “Ok this way you can’t go over budget”, but to investors, I don’t think they like to hear anything about limitations on receiving remittance from their investments.

In conclusion: feed-in tariffs

Some governments avoid it strongly, and I think all this is political. You have a lot of people who don’t want renewables to happen or they don’t want feed-in tariffs to happen, and if this is the case, it is usually because they want a different system that doesn’t challenge their standing in the market. People want to monopolise the market, they want to grab [as] much market share as they possibly can. When you have feed-in tariffs, those monopolies get broken up because anybody’s house could be a power station. Anybody could be a tiny energy company, or you can have a community wind farm for example. It might be 10 or 20 megawatts or something like that, and each time, the conventional energy industry and the local utilities are driven crazy because they want people to be customers, they want people to pay them, they don’t have to pay customers. There can be tremendous opposition, for obvious reasons [...].
There are a lot of different issues… Sometimes if that country produces a lot of coal, uranium or gas, they don’t want to see this huge spread of renewable energy, or they might say it is still too expensive. They say: “a feed-in tariff is too expensive.., we can do it in 5 years…” But in the end it’s just down to greed and short-termism and I think it is up to intelligent, caring people to try to reverse that and take advantage of what is proven to be the best mechanism for delivering renewable energy quickly and cheaply. However, I think it [the energy sector] is still dominated by a tiny number of the more powerful interests and it seems to be very difficult to really get it right. It shouldn’t be difficult; I mean you can see the logic of the feed-in tariff. It really works, it gets everybody involved. We have seen what it has done already and we have seen this can be more efficient than any other policy and can get us to where we need to go the fastest. Having said that, we can see all of these vested interests fighting against it relentlessly and then we are back to square one.
In general, one could also point out that there are renewable energy targets out there… that there are carbon reduction targets and in the end this can mean life or death for us all. Even our civilisation, our production systems, our vulnerable food systems, our ecological systems, our transport systems, our trading systems, our political and economic systems will all be broken. They can’t withstand all of the systemic shocks that climate chaos will bring. So it is not just about energy security and preventing future conflicts over oil resources like we have seen in the Middle East, because we are obviously going to reach the peak of oil. One has to ask why Saudi Arabia and the United Arab Emirates and other Middle Eastern nations are all suddenly getting so hot on renewable energy.
All these things are intertwined. In the end, if we have any kind of integrity and conscience and intelligence and rationality, all we can do is to take these policies that work and move to them as quickly as we can, as democratically as we can, learn from the successes and failures of others and just get it right. The job is to get it right.., to get energy right. I think we are running out of excuses for getting it wrong.

Interview conducted by Xavier Lemaire, SERN, 15th June 2009