Quota System for Renewables

An incentive system where the government sets the percentage or an amount of energy, usually annually, that comes from renewable sources and then allows the market place to determine the cost. The idea is that a certain amount of energy from RE is mandated, but how this is done and at what cost is left to the market to decide. The energy mandate may be fulfilled through actual energy production, or the purchase of renewable energy credits, depending on the design of the incentive. The underlying theory is that competition in this market place will drive down the costs of supplying renewable electricity and thus minimize the costs to the consumer of meeting renewable energy targets. Given the focus on market action, quota systems fit the more developed economies better than transitional or developing economies where energy markets, to the extent they exist, are less mature.