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UNDP Report Highlights Value of Feed-in Tariffs and Market-Access Instruments for Renewable Energy Markets

UNDP15 October 2012: The UN Development Programme (UNDP) has released a report, titled “Transforming On-Grid Renewable Energy Markets,” which discusses creating enabling environments for renewable energy and supporting renewable energy through feed-in tariffs (FITs) and related price and market-access instruments. The report also reviews UNDP-Global Environmental Facility (GEF) support to help developing countries assess and address key barriers and risks to technology diffusion and investment.

According to the report, a key challenge for policymakers is to make renewable energy attractive to investors and utilities without jeopardizing the attainment of other development goals or placing a cost burden on users. It identifies policy and financial derisking instruments as approaches that facilitate renewable energy investment. Policy derisking measures can remove underlying barriers and mitigate risk while financial derisking tools transfer investor risk to development banks or other public actors. The report recommends FITs and related price and market-access instruments as key.

The second section analyzes UNDP-GEF's efforts to promote renewable energy and market transformation through the development of national renewable energy regimes based on FITs. Lessons learned from clean energy projects in 15 countries include: the limitations of FITs, underscoring the need to combine FITs with financial derisking instruments and targeted policies to remove all market barriers; the incremental nature and long time scale of policy-driven projects; and the potential for renewable energy projects to generate multiple development benefits, inter alia, boosting economic growth, mitigating environmental risks, and reducing poverty. The report further identifies public discussions on barriers and developing capacity as pre-conditions for achieving sustainable renewable energy market transformation and broader development benefits.

The third section features in-depth case studies on Kazakhstan, Mauritius and Uruguay, each of which has implemented market transformation approaches to reduce renewable energy investment risk through guaranteeing electricity market access and providing long-term pricing. These experiences show the importance of nationally appropriate approaches to reduce investment risk and remove barriers, according to the report.

UNDP has also published a companion publication, titled “Derisking Clean Energy Investment,” which builds on the lessons learned and describes a methodology for assessing the impact of derisking instruments. [Publication: Transforming On-Grid Renewable Energy Markets]