Recent paper on the situation in Australia suggests that a reverse auction might be a good way of replacing feed-in tariffs. What problem are they trying to fix?
The paper itself is behind a paywall, and the author has not responded to my request for a review copy, so I will have to focus on my colleague’s Jesse Jenkins’ overview; he’s the one who tipped me off to the discussion.
As Jenkins puts it, the strong point of feed-in tariffs is that they “are effective at reducing risk for project developers”; the drawback, that “setting the correct price guarantee has proven difficult.”
The notion that reverse auctions are somehow better at setting prices is widespread but does not stand up to an investigation of actual cases. In Australia, Jenkins says, the winning bids were “more than 40 percent below the government’s expected cost.” In practice, large corporations with more liquidity can engage in predatory pricing, absorb the losses in the short term, and dominate the market over the long term by setting up domestic facilities – often a crucial requirement in governmental auctions. Only time will tell whether this just happened in Australia.
The process Down Under apparently also involved a prequalification to ensure that each winner could “deliver on its bid.” Brazil also recently did this. The result was that all but the most liquid corporations were shut out from the process; 10 percent of the project had to be provided up front as a sort of deposit. The wide range of SMEs that drive the German market would be shut out under such a system.
Finally, there’s the word “subsidy.” My regular readers know that feed-in tariffs are not subsidies any more than Medicaid is, as I recently argued over at Energy Post. But let’s stick to the energy sector – the goal of feed-in tariffs is to ensure profits for investors while preventing price gouging against customers. We have this in the US power sector as well, only that we don’t guarantee prices for individual energy sources – we guarantee them for monopoly utilities.
In many (most?) parts of the US, government officials (public utility commissioners) artificially arrange retail rates that utilities can charge in negotiations with utility representatives. The goal is to protect these monopolies, and energy sources compete with each other in order to keep retail rates down.
The goal is different in Germany, where companies compete with each other, not (just) energy sources. And since it’s not that easy to turn on a solar panel or wind turbine, we don’t make them compete with dispatchable sources that can react to price signals.
Overall, Americans seem to have a problem with government officials fixing prices, which feed-in tariffs do, but they do not have a problem with government officials fixing the market volume, which happens under auctions. The main benefit of reverse auctions is not the price outcome, but the ability of governments to control markets by setting the size of the market and choosing which companies win on it – truly a strange outcome for something called a “competition.”
But even if we agree, for the sake of argument, that feed-in tariffs are subsidies, it is madness for us to call for an end to subsidies for industries we support. Back in 2011, I managed to convince US PV expert Paula Mints not to call for an “incentiveless future” for PV as long as the fossil sector is still subsidized.
source: http://www.renewablesinternational.net/reforming-solar-energy-subsidies/150/537/81215/
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