Non-renewable energy such as nuclear and coal has led to political, environmental and economic issues concerning its continued usage and development. By definition, non-renewable resources will only steadily satisfy world energy needs for a limited time period before their scarcity necessitates alternative sources. There are efforts to move away from non-renewables; however, regions that do not have renewable resources are currently at a disadvantage. Creating incentives to develop renewable energy sources can support developing areas that still rely heavily on unsustainable energy. In March 2009, the Government of Ontario announced a Feed-In Tariff (FIT) program to encourage renewable energy development in the province. The model in the figure demonstrates the basic concept behind the FIT system. Exports from renewable energy sources are fed into the grid - Ontario’s energy supply. Whoever generates this energy is compensated by the FIT system because it is initially more expensive to generate renewable energy. Compensation is above retail and, as the percentage of adopters increases overtime, the FIT is reduced to the retail rate.
Mostafa Farrokhabadi is a PhD student in the Department of Electrical Engineering at the University of Waterloo and is supervised by Dr. Claudio Canizares and Dr. Kankar Bhattacharya. Mostafa wanted to compare the present worth of the real cost of wind and solar generation to the FIT payments introduced by the Ontario government.
Model of the FIT system between energy generators and power grids overtime
This case is written for an introductory course in engineering economics, as well outside of engineering. It gives students the opportunity to become familiar with the basics of energy regulation and rules, and how to perform an economic analysis in order to reach a reasonable conclusion.