Retail price effects of feed-in tariff regulation

The feed-in tariff regulation is the wider spread promotion scheme used to encourage the take-up and development of generation from renewable energy sources in the EU, and the costs of resources devoted to this promotion are usually borne by final consumers. Two components of the electricity retail price are expected to be influenced by feed-in tariff regulation: the incentive to those firms producing electricity from renewable energy sources and the wholesale price of electricity. In this study we analyze the effects that feed-in tariff regulation has on electricity retail price for industrial consumers. This analysis is performed by estimating the relative intensity of the effects from the cost of incentives for electricity generation under the feed-in tariff and the electricity wholesale price over the Spanish industrial retail price. Especial attention is devoted to technology-specific considerations, as well as short and long run effects. In general, results show that there is not a strong link between the retail and wholesale market for Spanish industrial consumers. Moreover, taking into account technology-specific characteristics, results indicates that an increase of solar generation leads to a higher increase in the industrial retail price than in the case of a proportional increase of wind generation. This implies that, when evaluating the feed-in tariff regulation impact on the industrial retail price, the cost of incentives effect prevails over the wholesale price effect, and this is stronger for solar than for wind generation.