Combination with other support mechanisms

Tax incentives include, besides others, exemptions or reductions from income tax, customs duties and sales tax. Provisions for tax incentives are sometimes included in different legal provisions and not in the FIT law itself. Investment incentives help to cover the total costs of a renewable electricity project. The positive effect of tax and investment incentives on the total project cost should be considered when setting the tariff (or price). As this can be a difficult task, it might be more appropriate to separate remuneration under the FIT from (certain) tax and investment incentives.

Even though we consider FIT laws to be the most effective and efficient support mechanism a combination with RPS is both possible and feasible. If your country already has a RPS scheme established, the combination of RPS and FIT is promising in the case of medium- to long-term technologies, i.e. those technologies that today are still rather expensive in comparison to conventional energy sources (i.e. PV). RPS schemes are designed in a way that only the most cost-efficient technologies are supported. Consequently, RPS have little incentive effects on the photovoltaic industry without additional support. A FIT law just for PV can be introduced, as in the case of Italy. In this case, PV power plants are exempt from the RPS scheme. Another possibility is to include mid- or long-term technologies, such as PV, in both support mechanisms. Under those conditions, the feed-in tariff for these technologies has to be reduced by the (expected) additional revenue incomes from the RPS scheme. Notwithstanding the above, we generally recommend introducing a FIT law for all technologies, rather than combining RPS and FIT.

Tender schemes might serve as an additional support scheme. When the FIT is linked to a target and it becomes obvious that the target will not be reached, one way to respond is to call for tenders to generate additional capacity, as the French example shows. The legislator should consider, however, whether the adoption of FIT tariffs (or prices) would not be a more appropriate step to trigger investments. This way, the complexity of the support mechanism can be minimised.

In developing countries, an increasing number of renewable electricity projects seek financing under the so-called Clean Development Mechanism (CDM) set up by the Kyoto Protocol. CDM projects must meet, for example, the "additionality" criterion under the Kyoto Protocol.

If CDM support is granted, the FIT law would need to ensure that double-funding is not provided. In addition, there should be transparent legal frameworks in both the developed and developing countries involved in renewable energy CDM projects.