The author makes very good arguments for a FiT (fixed price subsidy) and compares and contrast to the MRET (variable REC price subsidy). This is a similar comparison to ETS (fixed level of carbon, variable carbon price) vs Carbon Tax (fixed carbon price, variable level of carbon) arguments.

Two of the arguments he makes which stand out to me include:

1) A FIT reduces financial risk for people funding renewable energy projects because the subsidy is known and bankable (can borrow against an income over 20 years). The price of RECs (created by MRET) on the other hand can change week by week, so the funding carries more risk as the price of RECs can drop greatly by the time the project (e.g. windfarm) is built.

2) A diversified portfolio approach to renewable has advantages. MRET & ETS both strive for the lowest cost carbon abatement. An MRET will favour wind because it is currently the cheapest. But no one knows what will be the cheapest renewable energy in the long term.

e.g.
Solar Thermal (e.g. David Mills and Ausra) is currently undergoing rapid advances, as is Geothermal in Australia. Solar PV has been dropping in price by 20% every time the volume doubles. By 2020 it could well be the cheapest, at least when compared to the retail price of electricity.

It’s only when the volumes deployed greatly increase, can the learning curve do it’s magic and bring the prices greatly down across each technology.

In my view the author has written a long and compelling paper, and has some data about the effectiveness of Europe FiT vs their equivalent of MRET and is worth a read.

FiTs seem to be a way to do something, simply and at at house to house level- not to mention more jobs and income for savy investors and home owners. Basically anyone with a roof can make money once the rates are reasonable and set.

Below is a link to a plain english summary of the aclaimed German FIT system

Aprox 250,000 new jobs andsave 100m tons of CO2/year for $1.80 per household a month.
Pretty good I’d say!

http://www.renewableenergyworld.com/rea/news/reinsider/story?id=48310

Fits would be a great start, thanks for the good article.

FiTs are very inefficient in “bang for your buck” terms, but given the way Governments and, well, people work they are a good idea. They give Governments something to point to and say “we helped do that” and give people something to feel smug about.

In an ideal world of course the ETS would be very strong - which would come close to being a silver bullet if coupled with Energy Efficiency measures, etc.

some highlights.

FiT costs

Mr Fell—Yes. The cost in Germany is about 2 Euro per month for a typical household of four persons. The additional costs for the consumers are very low. On the whole, it costs about 2 Billion Euro more for all electricity consumers. This seems to be a lot but it is not, because on the other side we have a lot of benefits to reduce the money that the economy would have paid. We reduce the bill for incoming electricity imports—oil, natural gas, coal and uranium—by 6 Billion Euro. It is double the additional costs of the Feed-in tariff, so you see that we already have a benefit from these issues. Also, we avoid a lot of external costs from CO2 emissions certificates, environmental waste management costs and other costs that we must not pay from tax money. This amount is about 8 Billion Euro. So you see that we already have a lot of benefits and the additional costs of renewable energy for the electricity consumers are not really additional costs.

Emissions trading vs FiT

The second is that emission trading in Germany and Europe does not really work because the operators with the most CO2 emissions, like the conventional energy industry—the coal industry—and the big energy intensive industries, work to reduce the emission trading costs very much. They have already reached the point where the costs are so low that the emission reducing does not really happen. Last year we had in Germany a reduction of about nine million tonnes of CO2 in emissions from emission trading; from renewables we had a reduction of 120 million tonnes. But the additional costs of emission trading are priced at 10 Billion Euro. You see that the emission trading scheme produces not even a tenth of the reductions but has about three or four times the cost of the feed-in tariff.

from http://www.aph.gov.au/hansard/senate/commttee/S11399.pdf