One Size Doesn’t Fit All: Feed in Tariff Design in Developing Countries

• In Event: Climate Change Politics: The View from Junior Scholars

Abstract

The Feed in Tariff has catalyzed global solar and wind capacity expansion, guaranteeing grid access and a fixed price of energy to investors. While the FiT found great success in early adopters and industry leaders like Germany and Denmark, developing countries vary in their ability to successfully attract investment in solar energy projects. This paper explores the political sources of variation in feed in tariff ability to attract investment in developing countries. I focus on the structure of domestic energy institutions and policy design as they mitigate political risk for investors. FiT implementation plays out in the domestic energy market, with state owned monopolies as a source of political and regulatory opposition to distributed generation. Developing countries vary widely in energy market structure; where energy sector institutions are robust, with competitive generation markets, private sector participation, and independent regulatory agencies, investors face less political risk from incumbent utility providers. Design attributes including price guarantees, limits on retroactive tariff adjustment, and guaranteed grid access also contribute to policy credibility. Results indicate that among the fifty-four developing countries which adopted Feed in Tariffs, those with competitive energy markets, independent regulatory agencies, and risk mitigating design attributes attract higher levels of investment. I also explore variation between foreign and domestic investment, and variation in investment between early and late policy adopters. Broadly, the domestic context of implementation is important for policy outcomes, particularly risk-avoidant foreign investors.

Author

• Ishana Ratan, University of California, Berkeley