The Performance of Feed-in Tariffs to Promote Renewable Electricity in European Countries

Abstract

Over the past decade, feed-in tariffs have been a major instrument of European countries to promote the generation of electricity by means of renewable energy sources. This paper discusses the performance of feed-in tariffs to stimulate renewable electricity in European countries, particularly in Germany, Denmark and Spain. It concludes that a system of premium feedin tariffs has shown to be an effective instrument to promote the generation of renewable electricity, notably to ensure a low-level market take-off of wind power at the national level. In the longer term, however, such a system may become hard to sustain as it may suffer from some major drawbacks, especially when the generation of green electricity accounts for a significant share in total power production. These disadvantages refer particularly to the fact that a system of fixed premium prices tends to be costly, inefficient, distortive of competitive pricing and, hence, incompatible with the creation of a single, liberalised electricity market in Europe.