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Technology-specific tariffs (or prices)

Setting technology-specific tariffs (or prices) helps:

For each technology, legislators need to consider a verifiable and transparent calculation methodology, as well as setting tariffs (or prices) differently depending on location and size.

See an overview of tariffs (or prices) applying in EU countries in 2006.

Calculation methodology

Tariffs (or prices) tend to be based usually on average generation costs or on avoided external costs.

Experience suggests that setting tariffs on the basis of average generation costs supports a quick take-off in renewable electricity. By contrast, the "avoided cost" approach only coincidentally leads to an optimal tariff (or price). We therefore recommend the average generation costs method.

Average generation costs

Different renewable energy technologies have different costs. The main factors affecting the average generation cost of a particular technology include:

  • plant investment costs (including material and capital costs)
  • grid-related and administrative costs (grid connection cost, costs for the licensing procedure, etc.)
  • operation and maintenance costs
  • fuel costs (in the case of biomass and biogas)

Comparing the average generation costs with the expected amount of generated electricity and the estimated lifetime of a typical, standard plant, the remuneration can be fixed on a per kWh basis.

To determine the average generation costs it is recommended to calculate typical, standard applications of the different technologies used for electricity generation from renewable energy sources under the typical conditions of your region or country. In many regions or countries, some research and development has been carried out that might help in this case. At the same time, it is useful to compare the results with other countries or regions with similar geographic and economic conditions. 

Avoided external costs

External costs arise:

when the social or economic activities of one group of persons have an impact on another group and when that impact is not fully accounted, or compensated for, by the first group

EU Commission (2003): External Costs

For setting tariffs (or prices), external costs related to climate change, health and building damage from air pollution, agricultural yield loss, and energy supply security should be considered. In addition, the avoided market costs can be taken into account. This includes the costs that would be involved in generating the electricity from non-renewable sources and the avoided grid losses.

Read a 2006 study (in German) comparing the external costs of electricity produced from renewable energy and fossil sources and concluding that the support given to renewables costs less than the avoided external costs.

See a Table showing the range of tariffs (or prices) for certain technologies applied in EU Member States (2006).

Setting tariff (or price) by location

FIT laws commonly set location-specific tariffs (or prices), depending on the availability of a particular source, especially wind, in a given locality. This involves, for example, setting a higher tariff (or price) in less windy places. These do tend, though, to increase complexity, and so you might not consider them appropriate until your country or region has gained some experience with a FIT law.

For example: wind tariffs are determined by location in France.

France

In France, the tariff/price for onshore wind is fixed at 8,2 €cents/kWh for all plants for the first 10 years. For the following five years, the tariff/price depends on the full load hours (which were evaluated in the first 10 years). At very good wind spots with more than 3,600 full-load hours, a tariff of only 2.8 €cents/kWh is paid. At locations with bad wind condition (2,400 full-load hours or less) the tariff remains at 8,2 €cents/kWh. The tariff for location with average wind conditions varies depending on the full-load hours.

English

Arrêté of 10th July 2006, Annex, section 3 provides that:

3o Tariffs:
The applicable tariff for the delivered energy equals T, as defined according to the terms set out below.
For the installation covered by 1o of article 1 situated in metropolis, T is defined in the table set out below:

 

Annual duration of reference
operating time

T for the 10 first years
(c€/kWh)
T for the 5 following years
(c€/kWh)
2400 hours and less
8.2
8.2
Between 2400 and 2800 hours
8.2
Linear interpolation
2800 hours
8.2
6.8
Between 2800 and 3600 hours
8.2
Linear interpolation
3600 hours
8.2
2.8
Francais

Arrêté du 10 juillet 2006, Annexe, section 3 dispose que:

3o Tarifs :
Le tarif applicable à l'énergie active fournie est égal à T, défini selon les modalités ci-dessous.
Pour les installations visées au 1o de l'article 1er implantées en métropole, T est défini dans le tableau ci-dessous:

DURÉE ANNUELLE
de fonctionnement
de référence

T POUR LES 10
premières années
(c€/kWh)

T POUR LES 5
années suivantes
(c€/kWh)
2400 heures et moins
8.2
8.2
Entre 2400 et 2800 heures
8.2
Interpolation linéaire
2800 heures
8.2
6.8
Entre 2800 et 3600 heures
8.2
Interpolation linéaire
3600 heures
8.2
2.8

Setting tariff (or price) by size

Generally, economies of scale mean that larger production plants will produce electricity at lower cost. This could lead to windfall profits for the owners of large plants. Therefore, almost all existing FIT laws set specific tariffs for a particular technology in relation to plant size.

The most straightforward way to do this is to group plants into size categories by capacity bandwidth, and to set the tariff (or price) at different, decreasing levels from the smaller to the larger plants. For example, different tariffs for biomass plants could be:

  • 0 MW < Tariff/Price ≤ 5 MW
  • 5 MW < Tariff/Price ≤ 20 MW
  • 20 MW < Tariff/Price < 50 MW
  • 50 MW and above

For example:

Different tariff (or price) groups have been enacted in Spain for hydro power plants, with one group including "hydroelectric power plants whose installed capacity is no more than 10 MW", and another group including "hydroelectric power plants whose installed capacity is more than 10 MW but no greater than 50 MW." [RD 661/2007, § 2]

The Austrian FIT law establishes four size related categories for biomass (for the different "fuel types" three additional categories are set up). Group 1: all plants up to 2 MW capacity. Group 2: all plants with more than 2 and up to 5 MW capacity. Group 3: all plants with more than 5 and up to 10 MW capacity. Group 4: all plants with more that 10 MW capacity. More information

Include this feature in your proposed law

Text setting technology-specific tariffs (or prices) will appear automatically in your proposed law document, once you have made your choices for eligible technologies and plants.

If you have already made these choices, take a look at the text and Table in section 8(1) and (2) to see how they look. You can insert the tariff (or price) in the Table offline.

 
Clear this selection
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