Document Type

Working Paper

Publication Date

3-17-2015

Document Number

Working Paper Number 2015-02

Abstract

When choosing policy mechanisms to design and deploy energy policies, policymakers typically seek cost-effective ones, linking cost effectiveness to the lowest cost of support for RES-E generation and/or consumer costs. The objectives of this paper are to analyze the cost-effectiveness of renewable portfolio standards (RPS), feed-in tariffs (FIT) and auctions in the short and long term, considering both technology-neutral and technology-specific approaches. Results show that RPS and auctions are more cost-effective than feed-in tariffs (FIT) in the short term if cost-effectiveness is defined as minimizing consumer costs. Also, if one or more emerging technologies with higher levelized life cycle costs (LCC), low cumulative production and high experience elasticity are considered in the pool of RES-E policy design, a technology-neutral approach in the short-term could lock out these emerging technologies, avoiding a long term LCC reduction. In this case, a technology-specific policy used in the short-term would reflect lower total generation policy costs in the long term if compared with a technology-neutral policy in both short and long term. This paper calls this phenomenon the paradox of technology-neutral and technology-specific policies in the long term. Considering the results, this paper suggests a mix of technology-neutral and technology-specific policies using RPS or auction mechanisms to promote RES-E.

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