Support systems for the diffusion of renewable energy technologies - an investor perspective

Concern over climate change impacts and the projected depletion of fossil fuels has urged more governments to adopt policies that stimulate the diffusion of renewable energy technologies (RET). With an increasingly diverse suite of support instruments, the question emerges as to which instruments or combinations are able to achieve faster, more substantial diffusion results. Although various support instruments were extensively addressed in policy studies, there is still no consensus. This is partly because many policy studies take a policy-maker approach in comparing support instruments, leaving relationships between policy design and policy results as a black box. This paper proposes an investor-oriented perspective to analyze the diffusion potential of support systems for RET. The main argument is that it is not the type of support instrument but rather its risk/profitability characteristics that influence investor behavior and the rate of diffusion. The two instruments most frequently discussed and compared are the feed-in-tariff and the quota model. The analysis in this paper concludes that policy design is crucial: while often feed-in tariffs are applauded and quota system feared, feed-in tariffs may also bring about disappointing diffusion results when poorly designed while quota systems may be also conceived as attractive instruments for independent power producers. (c) 2004 Elsevier Ltd. All rights reserved.