Funding Renewable Technology on a Large Scale: Insights from Germany, Africa and MENA

Jennifer Morgan explains Feed-in Tariffs as a central part of renewable energy policy

Jennifer Morgan explains Feed-in Tariffs as a central part of renewable energy policy

One big issue at this COP is that of financing renewable energy and how to do it effectively given the range of socio-economic factors at play internationally. In Qatar, for example, electricity is subsidized, so its perceived value is not a factor in promoting renewable energy. The side event on The Renewable Energy Revolution—Lessons Applied in the Middle East and Africa addressed the topic of Feed-in Tariffs (FiTs), specifically renewable energy feed-in tariffs (REFiTs), and how this financing strategy is playing out in countries worldwide. An expert from Palestine put the scheme into a MENA region context.

Feed-in Tariffs are part of a policy mechanism designed to drive funding into renewable energy—they offer compensation to renewable energy producers through long-term payment agreements (20 years). The contracts are adjusted to reflect the cost of supplying various types of energy—solar- and tidal-power generators warrant higher payments than wind generators since the initial costs of the former are greater. Of importance and repeatedly mentioned by the panel, these schemes are adjusted over time based on the amount of power generated and income gathered so that the REFiT income doesn’t “overheat” the market of the recipient country.

Jennifer Morgan, Director of the Climate Energy Program for the World Resources Institute gave an overview of now REFiT has worked in Germany and how the lessons learned there would help customize the policy in other parts of the world.  She started by mentioning that FiT is globally the most widely-used system to support renewables, behind about 75 percent of photovoltaic systems and 45 percent of wind generation systems worldwide.

Among keys observed in Germany to the success of REFiTs, she said, are the guarantee of payment, which creates a stable and predictable investment environment, and  the built-in reduction of tariff payments as the production of electricity compensates for investments in technology over time.

Renewable Energy Feed-in Tariffs allow for decentralized investment, Morgan said. Many actors can participate in bottom-up market growth. In the case of Germany, this has resulted in a new, dynamic sector in every part of the country, with much stronger growth than anticipated.

“Twenty-five percent of electricity in Germany comes from renewables,” she said, “which is extraordinary given the winters there.”

The REFiT strategy has been fine-tuned over the years and is now a central aspect of a larger policy around funding renewables, she explained.

The World Resources Institute released a study comparing China, Germany, India, Japan and the US. In terms of wind energy, Morgan said, the long-term predictability has been key, and in Germany in particular has created jobs and brought costs down over time. Big debate remains around cost.

“In the US, it’s 60 percent more expensive to install the same amount of photo-voltaic equipment than it is in Germany,” she said. “It’s not the panels themselves but the soft cost; this is an important thing to note on the cost side.”

More ambitious examples of REFiT in application exist in the developing world, Morgan explained, but the cost can’t fall on the tax or ratepayers because the money simply isn’t there. International financial support is needed, perhaps from donors. Technical support is another consideration, she said.

Joseph Nganga, CEO of Renewable Energy Ventures in Africa, said “FiT is not just about energy creation it’s about job creation. It’s about tariff levels and cost recovery—the tariffs must be attractive to developers or they will be rejected.”

He cited an example in Kenya where the tariff scheme was rejected because the levels were off, and this delayed their implementation. Infrastructure should be there, he added: “it’s critical to make sure that the grid can support renewable energy.”

Nganga discusses lessons learned about REFiT

Most of all, Nganga stressed an enabling environment saying that if policy makers have to go through “a million hoops,” this delays the process and compromises the benefits. “REFits are a critical part of a wider development strategy … it’s not just about energy generation, it’s about development of the respectable countries.”

Dr. Riyad Hodali, of the Palestinian Solar and Sustainable Energy Society (PSSES), described REFIT in the Arab world, as mission impossible. “MENA region countries range from oil producing countries to those that are very poor,” he said. The poor don’t have money for REFit, and the rich don’t have the incentive because their energy is subsidized, he explained.

Hodali explains the range of circumstances at play in the MENA region

The energy demand in the Middle East is rising, he said. Meanwhile, the solar and wind energy potential in the region is the highest in the world. Some of the cost for setting up REFiT in MENA countries could be retained by exporting energy to the European Union, he argued. For now, REFiT in Arab countries is barely used, Algeria, Egypt and Jordan notwithstanding.

“Each country has to choose its own strategy based on the price of electricity,” Hodali said. “There is no way to have a REFiT in exporting countries without the liberation of the price of electricity; the subsidies keep this masked in these countries whereas in other countries it is sky-high and the argument for REFiT becomes obvious.”

This COP sees discussion around the Green Climate Fund (GCF), and the panel discussed the idea of directing some of those funds to REFiT, particularly in cases where countries might be at an absolute loss to start with. The consensus was that it’s not a one-size-fits-all situation—there are countries in Africa that can afford moving forward without support from other parts of the world, but there are countries that would take benefit from the GCF, Morgan said.

“You need to take it down to the local context and adapt it,” she said. “It involves policy learning as you go along, and learning what is working and not working. It’s about policy learning rather than a flawed policy mechanism … it’s according to an evidence base that’s according to what’s successful … we’ve done a lot of value-chain assessment.”

“The problem starts when we take into account that the oil is free … it’s not free,” Hodali said. “There is a subsidy, and this subsidy should be stopped, and we will find that solar or wind energy can be an alternative … it’s a mechanism for giving incentives to people, the question is how to use it.”

Hodali discusses the renewable resource potential in the MENA region

Hodali discusses the renewable resource potential in the MENA region

When Jordan stopped subsidizing electricity, he said, the people immediately began to talk about solar energy. Building on this, Morgan said that with their strong coal bases, China and Germany have both made the political decision to shift to renewables.

“Of course there is not only a technical challenge but also a political challenge to make people understand that decentralized energy production is possible,” Arne Jungjohann, of Heinrich Boll Foundation, the event’s moderator, interjected. “This requires a shift in power, not electrical power … but political power and business power.”

New website: related to latest findings on REFiT.

2 thoughts on “Funding Renewable Technology on a Large Scale: Insights from Germany, Africa and MENA

  1. Pingback: The Science of Urgency–Reflections on COP 18 « qscience.the blog

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