FITs or Feed-in Tariffs are important tools to increase the usage of renewable energy techs. But setting up these things at the right price is a massive balancing act. If these things are poorly designed, they can backfire, can halt the progress made by the industry, and wasting a lot of public funds.
According to studies, to set the best Feed-in Tariff levels, regulators need to take into consideration the behavior of affected players, including tech manufacturers. In a world that is facing irreversible climate change, this type of energy source can offer a clean alternative to fossil fuels.
As an excellent incentive to invest in technologies like renewable power, Einspeisevergütung or FITs have been adopted all over the world. Feed-In Tariffs are support plans offering consumers long-term contracts for generating clean energy.
The federal government guarantees the purchase of this type of energy fed into grids at reasonable prices or tariffs, and usually for a guaranteed number of years. FITs are support plans offering consumers long-term contracts for creating renewable electricity.
These things aim to drive down electricity costs, allow for immediate penetration of renewable techs, and support good innovation. They have played a vital role in the growth of the PV or PhotoVoltaic industry. But these things have not always been a success.
When inappropriately designed, Feed-in Tariffs have been immediately terminated in some instances, which has led to an extreme impending of some national PhotoVoltaic industries. The success of this technology lies in the price or level it is set up at and how it evolves over time – as renewable techs innovate and develop.
On the other hand, high Feed-in Tariffs are pretty good since they help kick start the penetration of clean energy. On the other hand, it is only successful if it can be terminated without risks from the clean energy industry, for instance, when the industry is mature to survive without Feed-in Tariffs. That is why the pace at which these things are decreased is very important. To get the balance right, policymakers need to consider when they will set FITs.
Click https://www.energy.gov/eere/solar/solar-photovoltaic-technology-basics to know more about PVs.
Why FITs?
With these things, photovoltaic panel owners sell excess electricity they produce back to power grids. These techs determine how much grid operators pay for units of photovoltaic electricity. Initially, this thing is priced higher compared to the wholesale price of conventional sources of power when we take into consideration the investment needed to produce and develop photovoltaic electricity.
Electricity produced by PV panels is more expensive compared to energy produced by fossil fuels. That is why grids pay premiums for clean energies, but it is expected to minimize the cost over time as techs improve and penetrate markets further. Eventually, this thing will become pretty unnecessary, as photovoltaic techs are widespread and competitive, as it is now in most markets.
The important role of renewable electricity manufacturers
Determining the FIT prices and how much it needs to evolve in the long run is not easy and has led to problems in some places. When using these things, people realized that policymakers need to look at the owners of PV panels and grid operators. There are times that they neglect the important role of PV panel manufacturers – it can create FIT plans to be less effective compared to their original schemes.
For instance, in Spain, a generous Feed-in Tariff package hopes to achieve extensive and fast market penetration for PV panels and drive down the costs of electricity generated by said panels. It paid consumers tons of money for the electricity their panels produced.
It aims to get more individuals to purchase PVP. But it ended with panel manufacturers earning more, the lack of reputable competition, unsustainable expenditure from the government, as well as the retraction of FITs that killed the PV industry in the country. Why were these things so ineffectual?
Introducing the game theory
To find an answer to this question and help policymakers set efficient and effective FITs, we need to study the three-player model. It includes the system owner or people buying panels to generate energy, grid operators, and PV manufacturers.
People can use this model to find the best possible price to set this system, and it determines how the system should evolve over time. It also looks at how the system might be affected by competitors in the photovoltaic market. It is based on the game theory, as well as considers the complicated interplay of decisions of players involved.
Each player can make decisions independently. For instance, regulators set system levels; consumers decide whether to spend money on PV systems, whereas manufacturers decide on sale prices per panel. The demand for these things can affect the manufacturer, and the quantity of power, then fed back into grids affect operators. Grid operators always need to meet overall energy demands, as well as also purchase back all photovoltaic energy at prices set by regulators.