Energy Efficiency Feed-in-Tariffs: Key Policy and Design Considerations
The energy efficiency of the buildings in which we live and work is well below economically optimal levels. Building owners typically have both much less informa¬tion and much less focus on the energy implications of their investment decisions than do those who make investments in the energy supply infrastructure. In addition, they typically have much shorter investment horizons than those investing in energy supply infrastructure. Energy efficiency feed-in-tariffs (FiTs) are a potential new approach to addressing these barriers. In a way, they are the obverse of energy efficiency obligations. Instead of establishing the quantity of energy savings desired and letting the market determine the price of meeting them, they establish a price that will be paid for energy savings and let the market determine the quantity of savings that will be delivered. To date, no jurisdiction has adopted an efficiency FiT as its fundamental policy construct for generating energy savings. However, extensive experience with related concepts in the US and Europe – “standard offer” efficiency programmes, capacity markets, and tradable white certificates – offers valuable insight into issues a grid operator would have to address when creating market mechanisms for efficiency resources and how markets react to offers of fixed price payments per unit of energy sav¬ings. This paper draws on that experience to assess the potential pros and cons of efficiency FiTs, as well as to explore critically important design considerations.