Take-or-pay Contracts for Renewables Deployment

Abstract

Renewables require support policies to deliver the European 20% target. We discuss the requirements for least cost development and efficient operation and quantify how different schemes (i) allow for the development of a renewable energy technology portfolio; (ii) reduce rent transfers to infra-marginal technologies or better than marginal resource bases; and (iii) minimise regulatory risk and thus capital costs for new projects. Long-term take or pay contracts minimise regulatory uncertainty, create appropriate incentives for location and operation, allow for efficient system operation and seem compatible with European state aid. We discuss how property rights legislation protects existing renewables investors, and thus can ensure ongoing investment during a transition towards the new scheme.