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Achieving sustainable development goals call for attention to cleaner fuels presented by Renewable Energy Sources based Electricity (RES-E) generation. RES-E finds specific mention in the United Nations Sustainable Development Goals (UN SDGs) goal number 7 (The Sustainable Development Goals Report, 2018), for its diverse benefits. Advantages of increasing RES-E supply range from reduction in imported energy costs and better energy security (Tongsopit, Kittner, Chang, Aksornkij, & Wangjiraniran, 2016), improvement in ambient health conditions (Buonocore, et al., 2015), increased energy access and job creation in rural and urban areas (Hirsch, Parag, & Guerrero, 2018) (Renewable Energy and Jobs: Annual Review, 2019) and higher economic growth (Shahbaz, Loganathan, Zeshan, & Zaman, 2015). Given these advantages, “green energy transition” is in focus for many countries (Fattouh, Poudineh, & West, 2018). However, RES-E generation suffer from well known limitations. Not only is it costlier to generate (Stram, 2016), there are risks of uncertainty and variability (Intermittency issues). Uncertainty refers to the lack of availability of the fuel source (such as solar and wind resources) at all times of the day. Variation in terms of quality and quantity of the energy resources, even when available, is termed as Variability (Bessa, Moreira, Silva, & Matos, 2013). Social negative externalities of RES-E present themselves in form of landscape distortions, noise effects and obstruction in migratory pattern of birds (Ali, Mansur, Baharudin, & Hassan, 2016). Hence an attractive investment environment, which guarantees high financial returns to RES-E investors (also the RES-E generators), is a necessary pre-condition to increase RES-E supply in the national energy mix.
Towards this, countries have implemented either price based incentives such as Feed-In-Tariff (FIT) and competitive bidding mechanism or quota/quantity based incentives such as Renewable Purchase Obligations (RPO)/ Renewable Purchase Standards (RPS), Green Energy Certificates (GEC), or a mix of both incentive groups. While RPOs/ RPS mandates power supplying utilities to procure a minimum percentage of their power supply from renewable sources, FITs refer to the price at which local power utilities purchase RES-E from generators and supply onwards to end users of electricity. Literature suggests that no single policy has taken the sector growth forward, but it has been a “policy package” (Sen & Kulkarni, 2019). Of all the instruments, FITs have been more popular than the other (Wall, Grafakos, Gianoli, & Stavropoulos, 2018), (Nicolini & Tavoni, 2017). State level supportive policies also exist such as the RPS/RPO regime, like in USA (Wiser, Namovicz, & Smith, 2007) and India (Schmid, 2012) with state level targets/mandates. Put together, the combination of FIT and RPO/RPS have been instrumental in retaining investor interest in the sector, and has been the go-to policy package in most countries (Sun & Nie, 2015).
Historically, FITs offered to RES-E generators have exceeded the ones offered to thermal power generating plants, with fixed and longer durations, due to higher cost of generation (Ivanova, 2012). The higher FITs offered have often been passed through to the end users through a green energy tax on monthly electricity bills, for residents residing within the local power utility’s electricity distribution network. This reduces the financial burden on power supplying utilities. Data suggests that many countries have adopted such a practice, like Canada (Bohringer, Rutherford, Rivers, & Wigle, 2012), Germany (Busgen & Durrschmidt, 2009), China (Schuman & Lin, 2012) and Italy (Bigerna & Polinori, 2014), amongst others. The pool of funds created through this is collected by local utilities, and serves as a financial net used to purchase RES-E from RE generators.