Overabundance of renewable energy lead to removal of market distorting feed-in tariffs

Up until recently, renewable energy production through solar and wind is always costlier than those from fossil fuel power, and require an economic incentive known as feed-in tariffs to achieve parity with fossil fuel energy in cost competitiveness. Specifically, feed-in tariffs support renewable energy by providing the cost differential between the price of base load grid electricity and that which the specific renewable energy needs to break even. However, with improving economies of scale in production as well as falling prices due to improvement in technologies, cost of production of renewable energy has fallen below that of fossil fuel electricity in some countries. More importantly, there is currently an overabundance of renewable energy in many European countries, which prompted the necessary decision in removing feed-in tariffs, which help save taxpayers’ funding used in supporting the renewable energy industry, while removing market distorting effects as renewable energy production in Europe no longer needs protection from the previously cheaper fossil fuel electricity. Collectively, as an incentive, feed-in tariffs is only justifiable if the society wishes to move towards an energy mix whose components are equally economically competitive such as renewable energy vis-à-vis fossil fuel power generation. However, the economic distorting effects of feed-in tariffs in lending a cost competitive advantage to renewable energy would need to be removed once it reached cost parity with other energy sources.