Sustainable Futures (Jun 2024)
A framework for developing and implementing FIT policies for renewable energy based on local economic conditions
Abstract
Energy policymakers of developing countries are striving to provide adorable, reliable, and cleaner energy for all the sectors of their economies. Feed-In Tariff (FIT) policies have played an important role in attracting independent power producers to invest in energy generation from renewable sources in developed and some developing countries. However, the development and application of the FIT policy framework are not autonomous of national and local fiscal and socio-economic policies. Financial modeling of FIT which considers local economic conditions and the state of the energy sector at the national level can contribute to the development of FIT policies that are relevant, realistic, and sustainable to investment in energy generation from renewable energy sources at the local level. This paper outlines the financial modeling of the FIT rates using a solar farm in Malawi as a case study. The results show that a shift from a fixed price model to a fixed price model with full or partial inflation adjustment considering the volatile inflation rate and macroeconomic risks in a fragile economy can effectively attract and increases private investments in the energy sector. Consequently, the financial modeling of FIT can enhance the generation of strategic information that can be used for the development of FIT policies that are relevant, realistic, and sustainable in the context of local economic conditions.
