Does the short-term boost of renewable energies guarantee their stable long-term growth? Assessment of the dynamics of feed-in tariff policy

TL;DR

This paper assesses whether short-term renewable energy growth under feed-in tariffs ensures long-term stability, using Iran as a case study, and finds adaptive tax policies are most effective.

Contribution

It introduces a system dynamics model considering financial and social factors to evaluate long-term FiT policy sustainability in Iran.

Findings

Adjusting electricity taxes based on budget status optimizes RE growth.

Current FiT policies risk financial crises without adaptive measures.

Tax-based policy adjustments outperform fixed-rate approaches.

Abstract

Feed in tariff (FiT) is one of the most efficient ways that many governments throughout the world use to stimulate investment in renewable energies (REs) technology. For governments, financial management of the policy is very challenging as that it needs a considerable amount of budget to support RE producers during the long remuneration period. In this paper, we illuminate that the early growth of REs capacity could be a temporary boost and the system elements would backlash the policy if financial circumstances are not handled well. To show this, we chose Iran as the case, which is in the infancy period of FiT implementation. Iran started the implementation of FiT policy in 2015 aiming to achieve 5 GW of renewable capacity until 2021. Analyses show that the probable financial crisis will not only lead to inefficient REs development after the target time (2021), but may also cause the existing plants to fail. Social tolerance for paying REs tax and potential investors trust emanated from budget related mechanisms are taken into consideration in the system dynamics model developed in this research to reflect those financial effects, which have rarely been considered in the previous researches. To prevent the financial crisis of the FiT funding and to maintain the stable growth in long term, three policy scenarios are analyzed: continuation of the current program with higher FiT rates, adjusting the FiT rates based on the budget status, and adjusting the tax on electricity consumption for the development of REs based on the budget status. The results demonstrate that adjusting the tax on electricity consumption for the development of REs based on budget status leads to the best policy result for a desired installed capacity development without any negative social effects and financial crises.