The schemes to remunerate investments in renewables should avoid excessive rents for RES-E generators.
Investments are pursued because investors want to turn know-how, access to capital, access to sites and project execution skills into profits. Hence remuneration schemes can only work if good projects are profitable. But if profit margins are too high, this creates additional costs for electricity consumers, undermining public and political acceptance. Thus high profits can trigger ex-post adjustments to policy frameworks, impact revenue streams, and therefore also limit the ability for investors to qualify for low cost financing opportunities.
Such high profits can occur when support levels are not differentiated by RES-E technology or location and some actors are able to capture high scarcity rents. Imagine a case where the remuneration for onshore wind and solar power is identical, and both technologies need to be deployed to meet future energy needs and/or renewable targets. If solar were more expensive, the remuneration level sufficient to trigger solar investment would be higher than the level necessary to trigger on-shore wind investment. In this case, if the support level for on-shore wind were lower, wind would still be deployed, but at lower policy costs, i.e., lower burden for electricity consumers who are generally those finally paying for the policy.
Several policy elements can contribute to avoid excessive rents for certain investors, including: differentiation of the remuneration scheme according to the RES-E technology and/or location (see principle G) automatic and well planned degression of the support levels, rapid fine-tuning of the support level based on a monitoring of market developments (see principle K) and measures favouring a healthy degree of competition among RES-E project developers and in general at all levels in the value chain.