Using RPSs and FITs as proxies, this article makes the case for closer integration of quantity- and price-based policies for better allocation of investor and regulatory risk. With aggregate risk mitigation greater than the subtotal of its parts, a joint RPS-FIT regime requires lower returns to leverage private-sector investment in renewables while ensuring sustainable growth in clean energy deployment.

Two competing policy approaches vie for dominance in the emerging clean energy economy.1 Quantity-based policies, such as renewable portfolio standards (RPSs), create markets for clean energy that competitive forces are expected to populate leaving the price determination to the market’s invisible hand.2 Price-based policies, such as feed-in tariffs (FITs), guarantee eligible clean energy generators the right to sell their electricity at above-market rates set by regulators at levels designed to cover costs and allow for reasonable returns on investment.3 Qualitative analysis and empirical evidence suggest that RPSs prioritize mitigation of regulatory risk over investor risk, while FITs focus on investor risk mitigation at the expense of greater regulatory risk. Both policies have historically been treated as competing, mutually exclusive options.4 Accordingly, few studies explore the potential for integrated use of price- and quantity-based policies to promote solar, wind, and other clean energy technologies.5 In practice, both types of policies often co-exist but they rarely operate in tandem. Using RPS and FIT policies as proxies, this article makes the case for closer integration of quantity- and price-based policies for more efficient allocation of market and regulatory risk in the interest of more cost-effective deployment support for emerging clean energy technologies. With aggregate risk mitigation greater than the subtotal of its parts, a joint RPS-FIT regime requires lower returns to leverage private-sector investment in renewables while ensuring sustainable growth in clean energy deployment.

This article proceeds in three parts. Section I presents the mechanics of price- and quantity-based policies and their dissemination in the United States and across the globe. Section II analyzes the mitigation and allocation of key risks under FIT and RPS policies. Section III makes the case for risk-optimizing integration of RPS and FIT policies.