Renewable energy policy and investment for nationally determined contributions: the case of Pacific small Island developing states

Abstract

Pacific Small Island Developing States (SIDS) are under the biggest threat of climate change with high pressures on economic growth due to the losses caused by extreme weather events. To break the chain between climate change vulnerability and underdevelopment, the Pacific SIDS have played a leading role in the energy transition towards renewable energy. The Pacific SIDS affirm that the penetration of renewable energy technologies would reduce the risks of climate change and accelerate their economic growth by minimizing their dependence on imported fuels. In 2016, the five Pacific SIDS including Fiji, Vanuatu, Tuvalu, Samoa, and Papua New Guinea, announced the targets of 100% power generation solely from renewable energy sources in their Nationally Determined Contributions (NDCs). However, the targets would hardly be attained without the private sector’s investment since the targets are contingent on the availability of funding. In order to facilitate private investments in these countries, proper policies to eliminate market barriers, reduce uncertainty and increase profitability are essential. Thus, this study looks into the effectiveness of 18 renewable energy policies based on a literature review of previous studies. Among the policies, the positive effect of Feed-in Tariffs (FITs) is widely demonstrated and supported by previous research outcomes. In addition to FITs, grants prove to be effective in alleviating finance constraints and mobilizing investments in a short-term, particularly for the solar and biomass sectors. Meanwhile, the effectiveness of the other renewable energy policies are still opaque. Tax-based measures, loans and guarantee schemes reveal mixed outcomes. Production quotas such as RPS show contradictory evidences depending on renewable energy sources. Net metering also has different results in expanding the generation of renewable electricity. As these research outcomes demonstrate, the effectiveness of renewable energy policies may vary by energy source, policy instruments, stages in a technology’s development, and other conditions. Therefore, selecting appropriate renewable energy policies considering the unique situation of the Pacific countries is required. Still, the Pacific SIDS have only a few supportive renewable energy policies in place. The most widely adopted renewable energy policy in the Pacific SIDS is FITs although it remain at an initial level. Other regulations such as tax credits, tax reduction, net metering, and public loans are being implemented or pursued in one or two countries only. In order to scale up investments from the private sector, FITs should be actually implemented and encouraged by the governments. In addition, the Pacific SIDS should develop a customized package of renewable energy policies for each country. For Fiji, involvement of IPPs with PPAs would be effective in reducing financial burdens. For Vanuatu, where a net metering scheme has been adopted, a series of technical assistance can accelerate deployment of renewable energy sources.