PORTFOLIO STANDARDS / QUOTA SYSTEMS

Some governments have implemented market-based stimuli for renewables, introducing legislation that places an obligation to buy renewable source energy on energy electric market participants - producers, suppliers and consumers.

Under such portfolio standards or quota systems, government or the energy regulator mandates producers, distributors or consumers to provide a proportion of their energy from renewable sources.  Although mainly used for grid-connected electricity, this instrument is also suitable for fuels (e.g. bio diesel, ethanol).  Under a portfolio standard or quota system, the additional costs of renewable energy are usually paid through a special tax on electricity or by a higher rate charged to all electricity consumers.  Schemes to ensure effective achievement of obligatory targets by participants are important for the success of quota systems, for example the implementation of effective sanctions in case stakeholders do not reach their targets.

Different renewable energy technologies can usually compete for inclusion in a given quota, as they are typically kept low at an early stage.  As quota systems usually function with competitive auctions, experiences show that they lead to solutions based on technologies that already stand at the more advanced end of the learning curve and, thus, creates no medium- term dynamics in terms of technology development.

On the other hand, there is the advantage that quota systems can be linked to an international green certificate trading regime. Certification facilitates such policy instruments: they are redeemed to prove that the market participant has fulfilled its obligations.