DRIVERS OF EFFECTIVE RENEWABLE ENERGY POLICIES

Abstract

Sustainability and green issues are becoming an integral part of business and management. Large gird connected renewable energy (RE) facilities form a subset of sustainability and the clean technology sector. Independent Power Producers (IPPs) cannot compete with traditional fossil fuel generated electricity and hence support policies are required to encourage and protect these IPPs. Different policy mechanisms have been deployed with varying degrees of success in predominately developed countries. Countries like Denmark, Spain and The UK, to mention a few, have developed RE sectors, where spill over affects have taken place. From a business perspective, it is important to understand what policies are available and what factors (drivers) play a key role. This study identifies five main RE policy mechanisms (Feed-In Tariffs (FITs); Tradable Green Certificates; Renewable Portfolio Standards; Bidding/Tendering and Fiscal) of which the FIT has experienced the most success in establishing a RE sector. Using Fuzzy Cognitive Mapping (FCM), the study relates the policies to the drivers to identify which drivers are most effective within a RE sector. The development and analysis of the model is based on an iterative process, where the draft FCM was adapted to fit a representative model and then further validated by applying country specific examples. Once the model had been validated, the propositions were analysed and predictions could be made in terms of which high level policy drivers lead to a sustainable RE sector in a specific country. Results indicate that all simulations reached an equilibrium state in the FCM model. The four drivers, observed as the most influential drivers, as set out in the propositions are: big players (category: local conditions), non-RE sector (category: economics), cost competitiveness (category: financial) and risk (category: financial). These four drivers seem to play the most influential part of a RE sector when a FIT policy mechanism is deployed. It is proposed that these four drivers are best suited to model a FIT system. This study is one of the first to empirically examine how various drivers emerge and how they need to be managed when designing a RE policy mechanism. Managing the four key drivers – as identified in this study - is pivotal in establishing a sustainable RE sector.DOI: http://dx.doi.org/10.5755/j01.ee.26.3.4884