Davies/Allen: Feed-in Tariffs in Turmoil

Lincoln Davies and Kirst Allen have just published an excellent article “Feed-in Tariffs in Turmoil” in the West Virginia Law Review. Anyone interested in better understanding feed-in tariff schemes should read it.

The comprehensive (38 page) article contains case studies of three countries that have used feed-in tariffs: Germany, Spain and South Korea. For each country, the authors first trace the evolution of the country’s law, its record of success and overall impact, and the challenges it now faces. The article then looks into lessons and implications from the different feed-in tariff regimes, covering areas like feed-in tariff effectiveness, internal feed-in tariff design, external effects as well as flexibility an stability of the schemes. The authors end with their conclusions.

The authors summarize their article as follows:

“Feed-in tariffs are extremely popular. Ubiquitous in Europe and across the globe, studies often suggest that feed-in tariffs (“FITs”) tend to outperform renewable portfolio standards (“RPSs”). The accepted logic is that this is because FITs offer certainty RPSs do not. Under a feed-in tariff, renewables producers know that all of their power will be purchased and at what price, while under an RPS, facilities have a guarantee on neither point. Feed-in tariffs, however, create a more complex policy ecology than is often acknowledged. While the FIT’s core advantage is certainty, the laws also inevitably erode the very stability they initially create. This is because FITs require recurring adjustment, and the more effective they are, the more modification they need. The end result is that FITs often foment turmoil, not stability. This Article challenges conventional thinking about feed-in tariffs, by showing the tumult they can create. Using three case studies of prominent feed-in tariffs that either have been abandoned or are surrounded by increasing debate — Germany’s, Spain’s, and South Korea’s — the Article shows both the policy turbulence feed-in tariffs can cause and why that matters. It offers a more nuanced view of FITs than is often offered. In turn, it extracts four key lessons lawmakers should keep in mind when designing FITs: (1) the laws tend to be effective, but (2) internal modification of the laws’ design is unavoidable, (3) feed-in tariffs often impact the legal and physical systems around them in unforeseen ways, and (4) FITs’ unpredictability must be carefully managed.”

Lincoln Davies is a professor of law at the S.J. Quinney College of Law of the University of Utah. Kirsten Allen is an associate at Fabian & Clenendin in Salt Lake City, Utah.

The article is a must read for anyone looking more closely into feed-in tariff systems, or trying to improve them. Comparing and contrasting the regimes in Germany, Spain and South Korea produced many noteworthy observations, also for people like myself who deal with one of the systems daily. One can only hope that the article will be read also by policy makers around the world working on the different renewable energy support mechanisms.

Source: Lincoln L. Davies/Kirsten Allen, Feed-in Tariffs in Turmoil, West Virginia Law Review, Vol. 116, p. 937, 2014

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