Feed-in tariff policy for microgrids: past and future a case study of the option value of complementary energy assets in turbulent conditions

PurposeThe intermittence of renewable energy sources is a substantial barrier to investments. This issue has conventionally been addressed by governmental policies such as feed-in tariffs (FiT). The purpose of this paper is to assess the effectiveness of these policies and the implications for investments in renewable energy systems, with a specific focus on systems where hydrogen storage systems are emerging as a viable option.Design/methodology/approachA quantitative modelling approach is used to analyse a real-life case study considering renewable energy investments staging options versus an upfront investment.FindingsThe main finding of the paper is that FiT policy is of little importance when storage is used, as the storage hedges weather related risk for customers. If the microgrid does not have local storage, or still exports substantial amounts of power, then FiTs are still needed. This implies that policies need updating as the energy sector evolves and the type of support needed becomes more sensitive to microgrid design.Research limitations/implicationsSimplifications were made when modelling weather. Normal weather volatility is accounted for, but not large-scale unusual weather patterns.Originality/valueThe paper provides new insights about using real options theory in a context of increasing uncertainty when complementarity between assets exist. It also argues that the historical "one size fits all" design of FiTs policies is ineffective for the future.