Feed-in tariffs for promoting solar PV: progressing from dynamic to allocative efficiency

Bell, William and Foster, John (2012): Feed-in tariffs for promoting solar PV: progressing from dynamic to allocative efficiency. Published in: Journal of Bioeconomics (4 January 2017)

Abstract

The aim of this paper is to analyses residential solar PV feed-in tariffs (FiT) policy history to inform the development of a sustainable flexible pricing regime to enhance the diffusion of energy storage, electric vehicles, solar PV installations and other distributed resources focusing on the case of ‘solar rich’ Australia. Solar PV has reached price parity at the retail level where the electricity price charged includes both transmission and distribution costs, in addition to the wholesale price. So the economic rationale for paying a FiT premium above market rates to achieve dynamic efficiency is no longer warranted. However, there is justification pay a premium to encourage dynamic innovation in energy storage. Socially, FiTs can be a problem because they can transfer wealth from poorer to richer households. Additionally, new investment in distribution and transmission, driven by peak demand spikes from air conditioners can act as a further transfer. Environmentally, FiTs can also fall short of their full potential to cut emissions if they lack ‘time of use’ price signals that reflect movements in the wholesale price. We suggest a sustainable flexible price regime that can be designed to addresses all three areas of concern: social, environmental and economic. The resultant transmission and distribution investment deferment would meet both environmental and economic objectives. We argue that the time has come to design a sustainable flexible price regime for solar PV that focusses upon allocative efficiency as an explicit goal and to introduce support for other distributed resources including energy storage to encourage dynamic efficiency.

• Item Type: MPRA Paper
• Language: English
• Keywords: Feed-in tariffs; FiT; solar PV; residential solar PV; reverse auction FiT; parity; Levelised cost of energy; LCOE; Diffusion of innovations; dynamic efficiency; allocative efficiency; Sustainable; Social progress; Environmental protection; Social inequity; DUOS; TUOS; smart meters
• Subjects: R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R22 - Other Demand; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q01 - Sustainable Development; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location > R38 - Government Policy

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