Global Ethics Corner: When Government Changes the Rules: Taiwan's Feed-in-Tariff

May 6, 2011

Taiwan requires electric utilities to purchase renewable energy, subsidized by the government. Recently when solar rates went down, the government changed the contract terms, saving on the amount of government funding but causing solar investors to make less profit. Was this justified?

As circumstances change, should governments change regulations? Let's look at feed-in-tariffs [FITs] in Taiwan as an example.

FITs require electric utilities to purchase renewable energy at a premium and with long-term contracts. The government subsidizes the difference and the electricity is fed into the grid.

Hence, FITs effectively encourage investment in renewable energy by enticing investors. They also reduce market demand for traditional energy and fundamentally alter future market prices.

In June 2009, Taiwan established an FIT to promote solar photovoltaic energy systems. But, late in 2010, in response to a drop in photovoltaic rates, the Bureau of Energy changed the rules. The Bureau decided that the rate depends on when a project begins operation, not when the deal is signed.

For deals already signed, feed-in-rates may be 30 percent lower and profits correspondingly decreased. Investors were very upset. So were advocates of renewable energy since there is likely to be less confidence in new investments.

Perhaps the Taiwan government pulled a fast one, denying investors the high returns that should accompany high risks, while also discouraging renewables.

Perhaps the government is justified. The costs of solar energy came down considerably and the investor's profits on earlier rates would have been very high. The government argument is that investor's profits should be reasonable. The decision also saves valuable budget funding.

What do you think? Do you save government subsidies for other projects and reduce profits to "reasonable levels," but risk discouraging crucial investment and suffocating renewable energy? Or, do you reward early investors, but risk excessive profits and spend additional government funds?

Adapted by William Vocke from John D'Angola

For more information see:

John D'Angola, "Taiwan's Feed-in Tariff Controversy," Green Study, March 23, 2011.
Photo Credits in order of Appearance:

Lainmoon
Wunkai
Walmart
Zilupe
Heidi Blanton
Changhua Coast Conservation Action
Wunkai
Tanjun
Chih-Hao Chen

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