Wind Farm: Regulatory and Contractual Hurdles a Wind Farm Must Overcome

In parallel with the huge efforts exerted by regulators worldwide to encourage investors to invest in the deployment of new renewable energy generation stations, it is equally important to devise suitable energy policies to make the proliferation of renewable energy sources as effective as possible (Präßler, 2013). Many hurdles faced by wind farm developments can be tackled in several ways beside monetary incentives (Präßler, 2013). For investors and developers, risk-mitigating policies are of utmost importance (Präßler, 2013). These should comprise clear and reliable “permitting procedures”, construction “support schemes”, and “grid access regulations” (Präßler, 2013). Certainly, the technology’s “primary deployment policy instrument” is not the only success factor; the construction design and other “secondary regulatory aspects” are also considerable factors (Präßler, 2013). “Together these can have significant impact on how developers perceive the attractiveness of a given policy regime” (Präßler, 2013).

Economic feasibility has been a barrier to the roll-out of renewable energy (RE) projects: “A comparison of LCOE [Levelized Cost of Energy] of RE technologies with those of other technologies (nuclear, gas and coal power plants) shows that—at least as long as externalities are not taken into account [ — ] RE sources are often not yet competitive with other sources, especially if they both feed into the electricity grid” (IPCC, 2012).

Attractive revenues subsidized by feed-in tariffs and renewable obligation certificates, for example, are inadequate for the wide-scale deployment of wind farms (Lüthi and Prässler, 2011). The OECD and the IEA find in a report on the wind energy policies effectiveness in OECD and BRICS (Brazil, Russia, India, China, and South Africa) countries that ‘‘beyond some minimum threshold level, higher remuneration levels do not necessarily lead to greater levels of policy effectiveness’’ (OECD/IEA, 2011). They imply that barriers of non-economic nature cause this effect. Therefore, policies addressing non-economic barriers must complement monetary subsidy schemes. (EWEA, 2010; Valentine, 2010; Lüthi and Prässler, 2011; OECD/IEA, 2011).

According to the IPCC, ‘‘barrier removal includes correcting market failures directly or reducing the transactions costs in the public and private sectors by, for example, improving institutional capacity, reducing risk and uncertainty, facilitating market transactions, and enforcing regulatory policies’’ (IPCC-WGIII, 2007). A literature review done by Lüthi and Prässler (Lüthi and Prässler, 2011) shows that the hurdles faced by wind farm development include lengthy complicated processes to obtain the necessary permits (EWEA, 2010; OECD/IEA, 2011), unclear and expensive requirements for grid connection (IEA-RETD, 2006; Swider et al., 2008; EWEA, 2010), stringent environmental regulations (EWEA, 2010), the volatility of support policy manifested in abrupt changes in policy and “stop-and-go situations” (Meyer, 2007; Barradale, 2010), and the reluctance of the public to accept the wind farms (Jobert, Laborgne and Mimler, 2007; Nadaï, 2007; Wüstenhagen, Wolsink and Bürer, 2007).

From an investor’s point of view, both technology and policy risks impose the main obstacles to take an investment decision for a specific renewable energy project (Lüthi and Prässler, 2011). There is a correlation between the type of investor that will be attracted to a certain project and the type of policy support and taxation scheme provided for the project (Langnis, 1996). Understanding investor perspectives provide regulators with an insight on the means to stimulate private financiers to direct their investments towards renewable energy projects (Bürer and Wüstenhagen, 2009). An overview of the most important factors influencing the decision-making process of wind energy developers (Lüthi and Prässler, 2011).

References

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