Rather than continuing to employ the traditional feed-in tariff strategy to purchase electricity from renewable sources, the government should be making such purchases on the basis of the benefits derived from the technologies, according to Prof. Eugene Kandel, head of the National Economic Council and chief economic adviser to the prime minister.

“Without knowing the benefits, it’s hard to argue that you’re making reasonable decisions,” said Kandel.

“We’ve reached a whole bunch of very interesting conclusions in the process – first of all, it’s not a linear benefit. The benefit depends on the introduction of the technologies.”

Kandel presented on Tuesday the results of an inter-ministerial renewable energy committee that he had led in order to provide recommendations to the government on achieving grid parity. He delivered the proposals publicly during a session of the Eilat-Eilot Fifth International Renewable Energy Conference, as well as at a subsequent press conference.

Up until now, the government has used the most popular method for determining renewable energy pricing, the feed-in tariff, explained Netanel Oded, an economist in the National Economic Council, who was a principal coordinator of Kandel’s report.

Under the feed-in tariff, the government evaluates how much every technology costs and then determines quotas and subsidy amounts for each. Each entrepreneur can then come on a first-come, first-serve basis to claim the quotas and receive a certain amount of return on the equity, Oded told The Jerusalem Post on Wednesday.

“What we suggested doing is looking from the benefit side instead of the cost side,” he said.

Every technology provides certain benefits, such as solar power operating particularly well during the day. However, such factors were “absent from all policy-making until now,” according to Oded.

In developing their recommendations, the interministerial committee team members wrote out formulas as to how to measure the benefit of every technology currently available as well as those that do not yet exist, Oded explained.

The researchers examined how inserting an additional unit of each different type of renewable energy on the electricity grid would influence market development in Israel, and made forecasts for 25 years into the future, Kandel said. Such forecasting needs to continue to occur periodically to include updated parameters and to add a sense of certainty, he stressed.

Four key benefits that can be derived from the use of various renewable technologies include fuel and capital savings, emission reductions, energy security and price stability, and impact on regional development, Kandel explained.

After quantifying all of the benefits generated by the different renewable modes, the government can then determine a premium – the price that is worth paying for the resultant electricity, according to Oded.

Looking at the results for solar, for example, the team found that electricity generated from this source would be worth 52 agorot per kilowatt-hour, and anything above that would constitute a subsidy, he explained. If a manufacturer was able to produce electricity from solar power at 52 agorot per kilowatt-hour or less, there would be no need to enforce a quota.

“As long as there is no engineering problem to the grid, as much as you can produce we’ll buy it because it’s worth it for us,” Oded said.

The premium that the government is paying accounts for benefits like the reduced illness in the population due to decreased pollutants in the environment generated by the producer.

“We’re buying emissions off of him, you can say,” Oded added.

In order to fully achieve grid parity – when costs are at or below the benefit amount – several different key steps still need to be taken, according to Kandel. The government must reduce the approval time for permits and improve coordination among regulators, and both consumers and producers need to understand that “certainty is good to everyone,” he explained.

“There seems to be some kind of belief that in the world of renewable energy, if you provide certainty to the producer you are somehow doing it at the expense of the consumer,” Kandel said. “In this case it is simply incorrect.”

A pre-commitment to prices for at least 25 years is ultimately good for both producers and consumers, as consumers will no longer be subject to fluctuations and producers will have lower financing costs, Kandel said.

Meanwhile, the government needs to develop a mechanism for pricing land reasonably, so that producers can actually get their projects on the ground, he explained.

One final recommendation that the interministerial committee has made is allowing for the hybridization of power plants on the grid, the experts explained.

“It might be most sufficient if you have a conventional plant and also added a solar capacity,” Oded said, noting, for example, that the solar portion could operate during the day and the traditional portion at night.

“Break this religious separation of renewables and nonrenewables,” Kandel said, noting that it is crucial to calculate the degree of renewability of everything – from solar, to wind, to coal.

Economically and environmentally, these two worlds can no longer afford to be polarized, he added.

“The government is committed to adding renewable energies,” Oded said, “but as the market has grown very, very mature lately, it looks to do it without significantly elevating the electricity tariffs.”

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