Analysis of Renewable Energy Incentives in the Latin America and Caribbean Region: The Feed-in Tariff Case

Renewable energy is becoming a priority for Latin America and Caribbean (LAC) countries because of energy challenges such as demand growth, high dependence on imported fossil fuels, and climate change. As of 2010, 12 LAC countries have implemented formal targets for renewable energy deployment. Some of the LAC countries, namely Argentina, Dominican Republic, Ecuador, Honduras, and Nicaragua, are using feed-in tariffs (FITs) to promote renewables. FITs are long-term, guaranteed purchase agreements for green electricity at a price that can provide project developers a reasonable return on investment. FITs are increasingly popular because if designed well, they can mitigate investor risk in renewables. This article presents a low-risk FIT design and then uses this design to bench-mark the existing LAC region FITs.