460
J. M. Kariuki
foreign direct investment, technology transfer, enhancing employment
and competitiveness in the host country.
This proposed premium tariff is already in use in Spain, Slovenia,
The Netherlands, Denmark and the Czech Republic (Mendonca 2007).
Unlike the fixed tariff design where producers receive a certain level
of remuneration per kWh of electricity generated, the premium tariff
is independent of the electricity market price. It represents a modification of the commonly used fixed tariff towards a market-based support
instrument. With the premium option, we get higher compatibility of a
liberalized electricity market, which is the reason Thailand thrived and
continues to thrive with large renewable energy installations. It involves
a better and more efficient assignment of grid costs with an emphasis on
alternative routings and supplementary services. There is a high risk for
the developer since the total level of remuneration is not determined in
advance, and there is no purchase obligation as is with a fixed tariff.
However, the upside is big and more market-driven as it assigns the
supply to real demand. This premium tariff thus has to be greater than
that of the fixed tariff option in order to compensate for the higher risk
for the developer. To avoid the corresponding higher electricity price,
which will be passed through to the customer, the Danish model can be
adopted. The Danish model has a premium varying with the electricity
market price or a top limit for the overall remuneration paid in the case
of the premium option. If the prices are expected to fall, then a bottom
limit could also be incorporated. Premiums also enhance efficiency, as
is the case in France for Biogas or geothermal plants which provide an
incentive for the plant operators to use the most advanced and efficient
technologies.
Such a tariff structure should reduce the subsidies between different
customer categories, reflect the economic costs of the electricity and
adjust the electricity tariffs through a flexible and automatic mechanism.
As such it would be composed of the base tariff and a fuel adjustment
charge. The base tariff is a bulk supply tariff; comprising the wholesale
tariff that the developer will charge and the fixed retail tariff that the local
utility or distributor will charge power consumers during each regulatory
period. There are many factors that will be used to calculate the base
tariff, which includes fuel prices, power generation expenses; electricity
J. M. Kariuki
foreign direct investment, technology transfer, enhancing employment
and competitiveness in the host country.
This proposed premium tariff is already in use in Spain, Slovenia,
The Netherlands, Denmark and the Czech Republic (Mendonca 2007).
Unlike the fixed tariff design where producers receive a certain level
of remuneration per kWh of electricity generated, the premium tariff
is independent of the electricity market price. It represents a modification of the commonly used fixed tariff towards a market-based support
instrument. With the premium option, we get higher compatibility of a
liberalized electricity market, which is the reason Thailand thrived and
continues to thrive with large renewable energy installations. It involves
a better and more efficient assignment of grid costs with an emphasis on
alternative routings and supplementary services. There is a high risk for
the developer since the total level of remuneration is not determined in
advance, and there is no purchase obligation as is with a fixed tariff.
However, the upside is big and more market-driven as it assigns the
supply to real demand. This premium tariff thus has to be greater than
that of the fixed tariff option in order to compensate for the higher risk
for the developer. To avoid the corresponding higher electricity price,
which will be passed through to the customer, the Danish model can be
adopted. The Danish model has a premium varying with the electricity
market price or a top limit for the overall remuneration paid in the case
of the premium option. If the prices are expected to fall, then a bottom
limit could also be incorporated. Premiums also enhance efficiency, as
is the case in France for Biogas or geothermal plants which provide an
incentive for the plant operators to use the most advanced and efficient
technologies.
Such a tariff structure should reduce the subsidies between different
customer categories, reflect the economic costs of the electricity and
adjust the electricity tariffs through a flexible and automatic mechanism.
As such it would be composed of the base tariff and a fuel adjustment
charge. The base tariff is a bulk supply tariff; comprising the wholesale
tariff that the developer will charge and the fixed retail tariff that the local
utility or distributor will charge power consumers during each regulatory
period. There are many factors that will be used to calculate the base
tariff, which includes fuel prices, power generation expenses; electricity