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Adjusting the tariff (or price)
A FIT law will establish mechanisms for adjusting the applicable tariff (or price).
These adjustments need careful attention. On the one hand, they help fine-tune the support mechanism in the light of changing economic and technical circumstances, such as general consumer price increases and efficiency gains through research and development. On the other hand, the industry needs stable framework conditions and so frequent changes of the support schemes will diminish investment security. At the same time, the legal framework for price adjustments must not be too cumbersome, so that the fine-tuning process is smooth and predictable.
Three types of adjustments are commonly made:
For plants within the FIT system:
Adjustments for inflation
The tariff (or price) set in the FIT law will apply for many years. Inflation could therefore decisively impact on achieving the Price Objective. So we recommend that the FIT law provides that the tariff (or price) will be automatically adjusted to take into account the annual inflation rate.
For example, annual increases in the consumer price index automatically adjust the tariff (or price) per kWh in Ireland, and 20% of the contract price in Ontario.
Ireland
Renewable Energy Feed in Tariff (RE-FIT - 2006), section 5.2 provides that:
Adjustments to Reference Prices.
5.2 The reference prices [listed in section 5.1] will be adjusted by way of indexation annually by the annual increase, if any, in the consumer price index in Ireland commencing 1 January 2007.
Ontario
Renewable Energy Standard Offer Program 2006, section 5.5 provides that:
5.5 The Contract, other than for PV Contract Facilities, includes an escalation on 20% of the Base Rate (but not the On-Peak Performance Incentive Payment) on the basis of increases in the Consumer Price Index commencing on and effective as of May 1, 2007 and thereafter on May 1 of each year of the Program, calculated as follows [calculation omitted]
Include this feature in your proposed law
How do I compile my proposed law?
Here you can choose the draft sample text provided for automatically adjusting the tariff (or price) for inflation (Option A) or choose to draft your own text offline (Option B). This provision is especially important where inflation rates are relatively high.
If you choose Option A, the text provided will appear as section 8(3) in your proposed law document with the section number and title, and you will need to insert a date offline. If you choose Option B, the text in square brackets will appear in section 8(3) of your document with the section number and title.
For new plants coming in to the FIT system:
Automatic reductions
It is desirable for a FIT law to include short-term, automatic revisions to reduce the tariff (or price) by a certain percentage every year for new renewable energy plants coming into the FIT system (so-called "tariff degression"). This way, efficiency gains of a given technology are anticipated and, at the same time, an additional incentive is provided for technology learning and cost reduction in the renewable electricity industry.
This tariff reduction would only apply to new plants. In other words: the tariffs remain the same for the whole time period set by the FIT law, but the later a new plant gets connected to the grid, the lower the tariff (or price) for electricity supplied from that new plant.
The degression rate is usually higher for comparatively immature technologies, such as solar PV, where technology learning is taking place at an accelerated pace.
For example, tariff (or price) reductions of 1% from 2010 have been enacted in Germany, and of 2% from 2009 for solar PV have been enacted in Italy.
Germany
English
Renewable Energy Sources Act, 2004, Article 9(2) provides that:
(2) As of 1 January 2010, the minimum fees specified in paragraph (1) above for new plants commissioned after that date shall be reduced by one per cent annually of the relevant value for new plants commissioned in the previous year; the amounts payable shall be rounded to two decimals.
Deutsch
Gesetz für den Vorrang Erneuerbarer Energien 2004, § 9.2 lautet:
(2) Die Mindestvergütungen nach Absatz 1 werden beginnend mit dem 1. Januar 2010 jährlich jeweils für ab diesem Zeitpunkt neu in Betrieb genommene Anlagen um jeweils 1 Prozent des für die im Vorjahr neu in Betrieb genommenen Anlagen maßgeblichen Wertes gesenkt und auf zwei Stellen hinter dem Komma gerundet.
Italy
English
Decree of 19 February 2007, Article 6.2 provides that:
2. The electrical energy produced by photovoltaic systems that were constructed in compliance with the present decree and came into operation in any of the years in the period between 1 January 2009 and 31 December 2010, is eligible, in relation to the nominal power and the type of the system, for the incentive tariff mentioned in subparagraph 1, less 2% for each of the calendar years after 2008 with commercial rounding to the third decimal place, notwithstanding the period of twenty years. The value of the tariff is constant at current prices in the aforementioned period of twenty years.
Italiano
Decreto 19 febbraio 2007, Articolo 6.2 dichiara quello:
2. L'energia elettrica prodotta da impianti fotovoltaici, realizzati in conformita' al presente decreto ed entrati in esercizio in ciascuno degli anni del periodo intercorrente tra il 1° gennaio 2009 e il 31 dicembre 2010, ha diritto, in relazione alla potenza nominale e alla tipologia dell'impianto, alla tariffa incentivante di cui al comma 1, decurtata del 2% per ciascuno degli anni di calendario successivi al 2008 con arrotondamento commerciale alla terza cifra decimale, fermo restando il periodo di venti anni. Il valore della tariffa e' costante in moneta corrente nel predetto periodo di venti anni.
Include this feature in your proposed law
How do I compile my proposed law?
Here you can choose the draft sample text provided for annual automatic percentage reductions in the tariff (or price) (Option A) or choose to draft your own text offline (Option B).
If you choose Option A, the text provided will appear as section 8(4) in your proposed law document with the section number and title, and you will need to insert the percentage reduction offline. The term in the text which has been defined appears in bold, and will automatically appear in the Definitions section at the end of your document.
If you choose Option B, the text in square brackets will appear in section 8(4) of your document with the section number and title.
Regular adjustments
To help keep the tariff (or price) right, the FIT law should provide for periodic regular adjustments. This allows for changing circumstances to be taken into account when setting the tariff (or price) for new plants coming into the system.
For example, periodic revisions are provided for in the German FIT law and in Spain's law, preceded in both cases by progress reports on how the FIT system is working.
Germany
English
Renewable Energy Sources Act 2004, Article 20 (1) provides that:
(1) The Federal Ministry for the Environment, Nature Conservation and Nuclear Safety shall, in agreement with the Federal Ministry of Consumer Protection, Food and Agriculture and the Federal Ministry of Economics and Labour, report to the Bundestag by 31 December 2007 and subsequently every four years thereafter about the state of affairs with regard to the introduction to the market of plants generating electricity from renewable energy sources and from mine gas and about the development of electricity production costs in such plants and shall if necessary propose an adjustment of the amount of the fees to be paid in accordance with Articles 6 to 12 and of the degressive rates, in line with the development of technology and markets for plants commissioned after that date...
Deutsch
Gesetz für den Vorrang Erneuerbarer Energien 2004, § 20(1) lautet:
(1) Das Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit hat dem Deutschen Bundestag bis zum 31. Dezember 2007 und dann alle vier Jahre im Einvernehmen mit dem Bundesministerium für Ernährung, Landwirtschaft und Verbraucherschutz und dem Bundesministerium für Wirtschaft und Technologie über den Stand der Markteinführung von Anlagen zur Erzeugung von Strom aus Erneuerbaren Energien und aus Grubengas sowie die Entwicklung der Stromgestehungskosten in diesen Anlagen zu berichten sowie gegebenenfalls eine Anpassung der Höhe der Vergütungen nach den §§ 6 bis 12 und der Degressionssätze entsprechend der technologischen und Marktentwicklung für nach diesem Zeitpunkt in Betrieb genommene Anlagen vorzuschlagen...
Spain
English
Royal Decree 661/2007, Article 44.3 provides that:
3. During the year 2010, with consideration of the results of the follow-up reports on the accomplishment of the Renewable Energy Plan (PER) 2005-2010 and the Strategy of Energy Savings and Efficiency in Spain (E4), as well as the new objectives set out in the following Renewable Energy Plan for the period 2011-2020, the tariffs, premiums, complementary payments and caps and floors as stated in this Royal Decree will be revised, taking into consideration the associated costs for each technology, the degree of participation of the Special System with respect to coverage of the electricity demand and its impact on the technical and economic management of the system, always guaranteeing reasonable returns of investment with respect to the cost of capital in the financial markets. From then on, every four years a new revision will take place, maintaining the before-mentioned criteria.
Español
Real Decreto 661/2007, Artículo 44.3 establece que:
3. Durante el año 2010, a la vista del resultado de los informes de seguimiento sobre el grado de cumplimiento del Plan de Energías Renovables (PER) 2005-2010 y de la Estrategia de Ahorro y Eficiencia Energética en España (E4), así como de los nuevos objetivos que se incluyan en el siguiente Plan de Energías Renovables para el período 2011-2020, se procederá a la revisión de las tarifas, primas, complementos y límites inferior y superior definidos en este real decreto, atendiendo a los costes asociados a cada una de estas tecnologías, al grado de participación del régimen especial en la cobertura de la demanda y a su incidencia en la gestión técnica y económica del sistema, garantizando siempre unas tasas de rentabilidad razonables con referencia al coste del dinero en el mercado de capitales. Cada cuatro años, a partir de entonces, se realizará una nueva revisión manteniendo los criterios anteriores.
Include this feature in your proposed law
How do I compile my proposed law?
Here you can choose the draft sample text provided for periodic regular adjustments to the tariff (or price) (Option A) or choose to draft your own text offline (Option B).
If you choose Option A, the text provided will appear as section 8(5) in your proposed law document with the section number and title. You will need to consider how often the adjustments can be made insert the date, and may amend the period, offline. You will also need to consider how often these adjustments can be made, making sure to be consistent with the timing of progress reports (section 9 in your proposed law). Preferably with the help of a local lawyer, you will also need to describe accurately the form of secondary legislation by which the adjustments will be made, so that they can be made simply. The term in the text which has been defined appears in bold, and will automatically appear in the Definitions section at the end of your document.
If you choose Option B, the text in square brackets will appear in section 8(5) of your document with the section number and title.