Thursday, March 15, 2012

Getting the Band Back Together

This isn't a perfect apples to apples comparison but it's close enough. From the graph we can see that prices in Italy carry a significant premium over prices in Germany. On top of the higher initial prices Italians, who have no KfW bank, also pay significantly higher interest rates (7% vs. 3%). I don't think Italy's higher prices are because of a less developed market, expensive labor or cumbersome Italian bureaucracy. I think the Italian market has this large premium because of a cruel market imperfection. The Italian photoelectric market understands the profitability of photoelectric systems better than the customer. This allows the wholesalers and installers to charge inflated prices. My thinking is simple. If Germany can install for 2 Euro/Watt so can Italy. Italy is currently controlled by a technocratic administration that is extremely budget conscious. It's safe to assume the next Conto Energia will have steeper cuts than are currently projected. The Italian installers will cry Mama Mia! They'll scream bloody murder and whine and bitch and piss and moan about how the industry is being destroyed. THEY TOOK OUR JOBS. It's all a show for the cameras.

FiTs are designed to support a specific technology. One rate for wind, another for small hydro etc. We do this because we want to encourage renewables but not over-subsidize them. What happens when one of the renewables becomes competitive? Some have argued we'll still need a FiT. I say no. Technically it's not a FiT if the price setting procedure is based on the market. It's something new and different. Some other acronym perhaps. Maybe, just maybe, no acronym at all. Question is, how are we going to set the price?

The industry doesn't want to bring forward this conversation because they want to milk FiTs for as long as they can. This is a dangerous and unhealthy game they're playing. 1. It's unnecessarily expensive. 2. It sets a bad example for the rest of the world. Take Japan for example. They're having a hard time economically. They want to set up a FiT but they don't want to handicap their economy. But the Japanese are smart and technical. MITI has been known to recognize and copy good German economic policy in the past. From this it follows that the FiTsters in Japan would have more political leverage if they could point to Germany as an example that shows how FiTs lead to sustainable market-based prices.

ZING!!! It just occurred to me that Germany is likely to set up market based prices in the next few weeks as part of their overall FiT overhaul. To me it makes no sense to cap the FiT payments at 90% without offering some sort of guaranteed price for the remaining 10%. I'm sure others must be thinking this too. The German thing to do would be assign a market based rate to the production over 10%. Italy and Japan are watching. Oh yes, they're watching.

No comments:

Post a Comment