Heikki Willstedt has been an expert in energy and climate change for the World Wildlife Fund (WWF) since March 2002.
Between 1998 and 2005, he was in charge of the design, approval and implementation of projects for the protection of the ozone layer in developing countries financed by the Multilateral Fund for the Implementation of the Montreal Protocol. Likewise, he participated in the development of the joint network on climate change and the protection of the ozone layer and Baltic countries.
Heikki works tirelessly to analyse the role renewable energies can play in addressing climate change, and in this exclusive interview, he shares with Renewable Energy Magazine his views on the delicate act of setting feed-in tariffs to promote renewable energy uptake, without making industries over-reliant on state support.
While the interview focuses on the solar thermal electric industry in Spain, Heikki’s comments are equally applicable to any renewable energy and will no doubt be of interest to industry and policymakers alike.
Interview date: March, 2010
Interviewer: Toby Price
How can the right balance between support mechanisms for the solar thermal electric industry and its self-sufficiency be achieved?
It is really quite difficult to achieve this balance. I do not think there is a perfect formula, but it has become clear that the regulator (who approves the feed-in tariff (FiT), in this case the Ministry of Industry) must have full control over the level of development of the technology. It is only by having this control that it can adjust the tariff to the true cost of the technology (to a certain extent this has been achieved with the FiT for wind power). If not, there is the danger of creating a speculative bubble, as happened in the Spanish photovoltaic industry in 2008 when the regulator realised too late that the FiT was too high compared to the actual costs of the technology.
The best approach is to have a FiT which decreases year-on-year until it is eventually eliminated based on the technology and changes in forecast costs. Such an approach must also include a review of how the framework is functioning every two years (or beforehand, if it is perceived that the gap between the true cost of the technology and the FiT is widening either positively or negatively).
What lessons can be learnt from Spain’s experience of introducing a policy mechanism to support the solar thermal electric sector?
Spain's target is to have 500 MW of solar thermal electric capacity installed in 2010. It is likely that this figure will be reached by mid-2011. In this regard, the solar thermal electric FiT has been sufficient to reach the objective, which was to launch this technology and reach a volume that will enable the industry to become established commercially and start to gain real experience of operating these plants.
The problem is that the FiT established for 500 MW is also going to be applicable to the 2,500 MW of projects that have been approved for roll-out between now and 2013. If all these plants are eventually built and start to collect the current FiT, it is possible that we will have missed a splendid opportunity to call on the developers and technologists to reduce the costs of solar thermal electric technologies. It does not appear logical in terms of streamlining economics and driving technological improvements that the first five solar thermal electric plants in Spain receive the same FiT as the last five plants completing the planned 2,500 MW.
Was the Spanish government too generous with the FiT in the first place?
Initially, no, because it was necessary to launch the technology. However, once a certain volume is reached, it is necessary to demand cost reductions in the mid to long-term by giving investors an appropriate signal (i.e. through a regulatory framework which establishes a FiT that decreases as the technology develops). At what point, in terms of market volume, does the start-up phase gives way to the purely commercial phase, when the FiT should start to decline? It is difficult to say, although some experts estimate that its could be between 1,000 and 2,000 MW.
Has the Spanish government now imposed a cap on total installed capacity that is too restrictive?
Limits on market size should not be imposed by the regulator. Once the technology has been rolled out, investments in solar thermal electric power should be guided by a system that encourages cost reductions through the abovementioned decreasing FiT.
Is Spain then an example for other governments to follow when ramping up their own solar thermal electric industries? What should they do different?
Spain has been able to launch its solar thermal electric industry thanks to an adequate tariff system. Nevertheless, it is too soon to draw conclusions because the first 500 MW have still not been installed. Now comes the most difficult stage, which is to properly manage the level of the FiT to ensure it encourages a gradual reduction in the cost of this technology until the industry no longer needs government support to be competitive. The new regulatory framework for renewables announced by the Ministry of Industry must ensure that the new solar thermal electric plants rolled out between now and 2012 are cheaper and therefore require lower tariffs.
For this to be achieved, supposedly cheaper conventional technologies, such as coal and gas, need to start internalising the costs of their environmental impacts such as carbon dioxide emissions, while subsidies for these fuels should be eliminated to create a level playing field for all technologies to compete in the electricity market.
It is also possible that fossil fuels could become more expensive, leading to solar thermal electric power becoming more competitive in a shorter space of time that was expected. Nevertheless, ideally, by 2025 this technology should have developed sufficiently for it not to need tariff support. Furthermore, for this technology to become a true energy option for developing countries, it is critical that costs fall in the medium term, since the spending power of electricity consumers in these countries is generally not the same as in Europe.
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