Building a Renewable Energy Tariff Framework: Best Practices & Moldova

1. Building a Renewable Energy Tariff Framework:Best Practices & Moldova Isabel Bjork SWECO/Pierce Atwood LLP Consortium Technical Assistance to ANRE Republic of Moldova September 2008

2. Outline • Purpose of an RE Tariff Framework • Types of RE Support Schemes Used in EU • Evaluation of Effectiveness of Different Support Schemes • Market Perception of RE Support Schemes • Reducing Barriers to Investment in RE • Conclusions on Best Practices

3. Purpose of RE Tariff Framework • To reduce obstacles to RE deployment • Requires initial support mechanisms to compete with large hydro and thermal plants • (incumbents, existing framework) • Requires policy supports that reduce investors’ perceptions of risks • Moldova passed the Law on Renewable Energy in late 2007 (draft tariff methodology first step in creating secondary framework)

4. RE Support Schemes • Feed-in tariffs (FT), quotas, green certificate training, tender, fiscal measures • FT most common & efficient, esp. for young markets • Moldova’s Law on Renewable Energy envisions special pricing structure for renewable energy; similar to FT structure but fundamental differences too

5. RE Support Schemes • Most countries supplement with fiscal measures (grants, tax incentives, etc.) • Moldova’s Law on Renewable Energy envisions tax and crediting incentives for individuals and business entities that produce or improve technical equipment and devices functioning on the basis of renewable energy sources (Art. 15), the establishment of an Energy Efficiency Fund (Art. 16)

6. Differences between schemes • Fixed tariff = pricing law: RE producers are paid a set rate for their electricity (fuel) over a long term period; price usually differentiated by technology and size. (18 of 27) • Market determines capacity and generation • www.optres.fhg.de/OPTRES_FINAL_REPORT.pdf: Conclusion: feed-in tariffs are effective at relatively low investor profit

7. Differences between schemes • Quota = government mandates a minimum share of capacity or generation comes from RES. Usually combined with green cert. (7 of 27) • Market decides price – viewed as more market based • Primarily supports low-cost technology (if absent other support systems) • Ex. Of UK – high prices, not much capacity, estimate 5-6% higher cost, grants required to assist stimulation • Generally unproven because young • Greater suitability for mature markets

8. Best practices: Feed-in Tariffs • A fixed or premium tariff structure • Support level differentiated across technologies  • Stepped tariff designs – differentiation within same technology based on site, plant size, conditions that affect the yield  • Process and period for tariff revision, including tariff degression  • Long duration (usually in the 15-20 year range)  • Purchase obligation  • Strong government role, with regulatory support

9. Best practices: Feed-In Tariffs The rationale: Creates security for investors: • guaranteed payment for RE • guarantee comes from fixed price set by Government (usually) for each defined type of renewable energy over a long period of time (calculated a priori) • giving investors stable, predictable policy and legal frameworks they desire • requires working through issues of secondary legislation such as regulations regarding supply, licensing, etc.

10. Ex. Germany: Feed-in tariffs • Law sets price (range) - quantity determined by market • Long term fixed price of 20 years (per site, the date of expiration is 20 years after the date of installation) • Staggered tariff regime for new technologies; later installations receive lower tariffs to reflect expected progress, create efficiency • Rate of decrease based on empirically derived progress ratios for different technologies and site, yield/generation costs of each particular plant, with periodic review to assess price in light of technological and market developments

11. Ex. Germany: Feed-in tariffs Gives a minimum fee by type of technology, at a certain capacity. Article 81 gives fees paid for electricity produced in plants with a capacity up to and including 20 megawatts using biomass: • at least 11.5 cents per kw-hr up to capacity of 150 kilowatts; • at least 9.9 cents per kw-hr up to capacity of 500 kilowatts; • at least 8.9 cents per kw-hr up to capacity of 5 megawatts and • at least 8.4 cents per kw-hr for capacity over 5 megawatts… the fee shall be 3.9 cents per kw-hr if plant also uses waste wood classified in categories…set out in the Waste Wood ordinance

12. Ex. Germany: Feed-in tariffs Important: • German structure took a long time to be refined (and under constant refinement) • Other schemes were used to create initial investment • Tried and tested since 1991, with several revisions of the primary legislation

13. Ex. Germany: Feed-in tariffs

14. Market perceptions of RE support schemes • Perceived investment risks have more of an impact on effectiveness of RE policies than potential profits or costs • Most important issue identified was stability • regardless of type of instrument used • Critical because of long lead-time

15. Best Practices: Renewable energy is a multi-sector approach • Government must establish and follow a long-term policy for RE with strong continuity over period of years • Targets (have these in Moldova - %6 to 2010, %20 to 2020) • Clear priorities (have indications in Moldova – biomass, wind) • Need dedicated institution devoted to implementing and managing policy and providing continuity • Ministry/arm of government • Regulator • Need reasonable financial commitments • Support mechanisms (envisioned in the Moldovan Law, some tax incentives, support fund)

16. Moldovan framework • Adjustment of national legal framework to the European Union and international standards (Art. 5(3)) • Law envisions a pricing support scheme (Art. 12) • Producer’s costs are to be covered in the methodology • Connection fee and support of the grid/networks to accommodate RE & fuel incorporated in cost analysis • Return on investment included in methodology must not exceed 2 times corresponding rate for traditional energy • Duration of the tariff shall not exceed 15 years • Annual review by ANRE (Art. 24) – changes • Consideration of prices on international market (Art. 24, 12a)

17. Moldovan framework • Non-discriminatory access and connection to grid and networks • Purchase obligations placed on suppliers • Of a pre-determined share of electricity produced from renewable energy sources • Importers of petrol products and the internal suppliers of electrical energy shall purchase the established volumes of fuel and energy from the authorized producers in compliance with the share-part determined by ANRE, given the share held by these of the electricity and petrol products markets

18. Thank You! Isabel M. Bjork Pierce Atwood LLP One Monument Square Portland, Maine USA 04101 Tel: +44-1904-426271 Fax: +207-791-1350 Email: ibjork@pierceatwood.com