Energy Policy 113 (2018) 239–248

Contents lists available at ScienceDirect

Energy Policy
journal homepage: www.elsevier.com/locate/enpol

Prices versus quantities: Comparing economic efficiency of feed-in tariff and T

renewable portfolio standard in promoting renewable electricity generation
⁎
Gobong Choia, Sung-Yoon Huhb, Eunnyeong Heoa, Chul-Yong Leec,
a
Department of Energy Systems Engineering, Seoul National University, 1 Gwanak-ro, Gwanak-gu, Seoul 08826, Republic of Korea
b
Department of Energy Policy, Graduate School of Energy & Environment, Seoul National University of Science & Technology, 232 Gongneung-ro, Nowon-gu, Seoul
01811, Republic of Korea
c
New and Renewable Energy Research Division, Korea Energy Economics Institute, 405-11 Jongga-ro, Jung-gu, Ulsan 44543, Republic of Korea

A R T I C L E I N F O A B S T R A C T

Keywords: In order to promote renewable electricity generation, several countries have been adopting a feed-in tariff (FIT)
Renewable energy or a renewable portfolio standard (RPS). Of these two renewable energy policies, investigating which one has
Feed-in tariff better performance is a subject of debate. This study comparatively analyzes the economic efficiency of FIT and
Renewable portfolio standard RPS in the South Korean renewable energy market. FIT was implemented from 2002 to 2011, while RPS has been
Economic efficiency
in force since 2012; hence, a comparative analysis of the two policies is ideal. The benefit cost ratio and net
present value were measured from two different perspectives: the government and energy producers. The results
showed that RPS was more efficient for photovoltaic energy from the government's perspective, whereas FIT, for
non-photovoltaic energy, such as wind power, bio-energy, and fuel cells. However, from the energy producers’
perspective, FIT was more efficient for photovoltaic energy, while RPS was more efficient for non-photovoltaic
energy.

1. Introduction development worldwide. Therefore, recently, a majority of the coun-

Renewable energy has many environmental and safety advantages
compared to conventional energy sources. To address climate change,
decrease fuel import dependency, diversify energy sources to respond to
external changes and shocks, and dominate future technology markets,
many countries have been developing their renewable energy supplies
(Lee and Huh, 2017). Thus, renewables have now been globally es-
tablished as mainstream sources of energy, providing an estimated
19.2% of global final energy consumption as of 2014 (REN21, 2016).
Since combatting global climate change predominantly includes stra-
tegies involving renewable energy implementation, its supply is ex-
pected to grow steadily in the future.
National- and state-level policies play critical roles in the effective
promotion and dissemination of renewable energy because of its cost
disadvantage compared to conventional energy sources. Extant litera-
ture already highlights the importance of government intervention,
with adequate policy, in the expansion of renewable energy supply and
related technological innovations (Dulal et al., 2013; Kim and Kim,
2015; White et al., 2013; Rao and Kishore, 2009; Tan et al., 2008). For
example, Zyadin et al. (2014) confirmed that the lack of governmental
policies was a critically limiting factor for renewable energy
tries have renewable energy support policies in place (REN21, 2016),
while policymakers have developed various policy mechanisms to
promote renewable energy worldwide. These policies can be categor-
ized into fiscal and financial incentives, market-based instruments,
option to provide funds, policy instruments related to investment de-
cisions, and regulatory measures (Polzin et al., 2015).
Renewable energy is used in three sectors: electricity, heating and
cooling, and transport. Despite the growing interest in transport and
heating and cooling, the electricity sector still performs the most crucial
role in expanding the supply of renewable energy, with relatively active
implementation of related policies (Huh et al., 2014). The core policy
decision in the renewable energy sector is to choose between price- or
quantity-based policies for adoption as the main scheme. The former is
represented by feed-in tariffs (FIT) and the latter, by renewable portfolio
standard (RPS)—the two main support mechanisms for renewable elec-
tricity development (Lipp, 2007). Since most countries predominantly
implement the aforementioned policies over other options, we may
conclude that they currently play a key role in the renewable electricity
sector. Moreover, a similar number of countries implement either the FIT
or RPS policy; hence, it is difficult to ascertain which one of the two
policies is evidently superior.1 In fact, for many countries, choosing

⁎
Corresponding author.
E-mail addresses: gchoi0322@snu.ac.kr (G. Choi), sunghuh@seoultech.ac.kr (S.-Y. Huh), heoe@snu.ac.kr (E. Heo), cylee@keei.re.kr (C.-Y. Lee).
1
The number of states, provinces, and countries with FIT policies is 110, while the number of those with RPS/quota policies is 100 (REN21, 2016).

https://doi.org/10.1016/j.enpol.2017.11.008
Received 28 July 2017; Received in revised form 30 October 2017; Accepted 3 November 2017
Available online 21 November 2017
0301-4215/ © 2017 Published by Elsevier Ltd.
G. Choi et al.
either policy is a crucial, but difficult, policy decision; thus, both are
implemented as per the circumstances, or countries switch between po-
licies at certain points. Therefore, it is important to determine the ad-
vantages and disadvantages of FIT and RPS, and to evaluate their relative
performance. Many studies have investigated such policy impacts, but
presented differing results depending on individual focus (de Mello
Santana, 2016; Dong, 2012; Sun and Nie, 2015).
This study compares the economic efficiency of FIT and RPS by
conducting cost-benefit analysis (CBA) and calculating net present
value (NPV), based on which it provides implications for effective
supply of renewable energy. The subject of empirical analysis is South
Korea, which is highly suitable for analysis, since it has implemented
both policies within the electricity sector.2 Currently, with the im-
plementation and establishment of RPS in Korea, an empirical com-
parison of FIT (which had been already implemented) and RPS can
provide both policy implications for institutional operations of FIT or
RPS in other countries and improvement of the domestic RPS scheme.
The novelty and contribution of this study are as follows. First, this
study explores, in detail, which policy—FIT or RPS—is relatively more
efficient for each renewable energy source in the economic view.
Second, by drawing the costs and benefits of the policies in the gov-
ernment and energy producers’ perspectives, it suggests implementable,
specific actions for individual players. In addition, this study can be
used as a reference for related research by systematically presenting
detailed items to estimate the costs and benefits of FIT and RPS.
This remaining study is presented as follows. Section 2 summarizes
previous studies covering FIT and RPS policy effects or using CBA in the
renewable energy sector, and presents the marginal contribution of this
study. Section 3 provides a detailed description of the research metho-
dologies—CBA and NPV. It also presents detailed items to estimate the
costs and benefits of the two policies in the process. Section 4 includes the
results of the empirical analysis. It provides the results according to the
scenario setting, based on which it compares the economic efficiency of
the two policies for each source. Finally, Section 5 summarizes the study
results and limitations, and sets the direction for follow-up research.
2. Literature review
2.1. Debates on the policy impacts of FIT and RPS
FIT is a “pricing policy” that covers the difference when the market
price of renewable electricity is lower than the reference price that
reflects the standard cost by each renewable source. On the other hand,
RPS is a “quota system” that makes it mandatory for energy suppliers to
produce a certain ratio of supplied power from renewable sources.3
Two frequently used evaluation criteria for renewable support schemes
are their effectiveness and economic efficiency (Ragwitz and
Steinhilber, 2014). In order to better understand the aim of this study, it
is necessary to distinguish between effectiveness and economic effi-
ciency of a renewable policy. First, in terms of renewable policy, ef-
fectiveness refers to the extent to which a promotion strategy is capable
of triggering renewable deployment, which is either measured in in-
creased generation or increased installed capacity (Ragwitz and
Steinhilber, 2014). On the other hand, efficiency or economic efficiency
of a policy has more varied definitions in extant literature. Considering
all these studies, the major difference between efficiency and effec-
tiveness is whether its criterion considers required costs or additional
impacts of policy enforcement or not.4 For example, Gunn (1997)
2
South Korea had implemented FIT from 2001 to 2011, and has been implementing
RPS since 2012 (Huh et al., 2015).
3
See Lipp (2007) for details on the concept of FIT and RPS, operation methods, and
major advantages and disadvantages.
4
The concept and practice of economic efficiency and effectiveness of policy instru-
ments can be found in Gunn (1997), Perrels (2001), and Ragwitz and Steinhilber (2014)
in more detail.
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Energy Policy 113 (2018) 239–248
pointed out that economic efficiency is often defined as comprising the
minimization of the cost of operations and the optimization of invest-
ment decisions. Since this study considers both benefit and cost factors
of FIT and RPS by using CBA and NPV, it analyzes the two policy al-
ternatives with a focus on economic efficiency.
With such clear differences in the operation methods, advantages,
and disadvantages of the two policies, there have been constant re-
searches on the comparison of the two policies. Some of the earlier
studies include Lauber (2004) and Lipp (2007). This section reviews
previous literatures that compared the policy impacts of FIT and RPS in
different perspectives, and summarizes the limitations and implications
of this study. First, major studies that proved FIT's superiority over RPS
are examined. Butler and Neuhoff (2008) compared the two policies by
comparing the price and deployment level of wind power in England
and Germany, which adopted RPS and FIT. The results suggested that
the cost of the FIT is lower than that of the RPS. The long-term price
guarantee provided by FIT reduces regulatory and market risk, and
explains the lower cost. Based on interviews from 43 institutions in
Southeast Asia, Sovacool (2010) evaluated eight renewable electricity
policy mechanisms with five indicators, followed by a comparative
analysis. FIT was found to be the only mechanism that met all criteria.
Haas et al. (2011a, 2011b) reviewed promotions strategies of renewable
energy sources within the European electricity market, and depicted
their properties. Results showed that FIT provided a certain deployment
of renewable electricity in the shortest time and at the lowest costs for
society, while RPS showed a relatively lower effectiveness. Dong (2012)
investigated the relative effectiveness of FIT and RPS for wind capacity
development by analyzing five years of panel data in 53 countries. The
study claimed that FIT performed better than RPS. It concluded that FIT
had better long-term effects in promoting wind energy, although, in the
short run, RPS could also provide some incentives to developers. Kilinc-
Ata (2016) analyzed which policy is more effective for renewable
electricity deployment using panel data of 27 EU countries and 50 US
states from 1990 to 2008, as well as the fixed-effect regression model.
The result showed that FIT was an effective mechanism for stimulating
deployment capacity of renewable electricity, while quota (RPS) was
not. Using a panel regression model, recently, Li et al. (2017) measured
the effectiveness of diverse policies for the photovoltaic (PV) and wind
power development in the EU. The findings confirmed that the FIT is
more efficient than RPS for PV and wind power development.
Meanwhile, there are studies that claim RPS's superiority over FIT.
Schmalensee (2012) pointed out that the previous studies claiming FIT's
superiority neglected its impact on actors other than investors in re-
newable energy sector and those who pay subsidies. The theoretical
model presented by the author showed that, as long as the unit cost of
renewables was higher than the unit cost of fossil electricity, RPS in-
volved less long-run social risk than FIT. de Mello Santana (2016)
analyzed the long- and short-term cost-effectiveness of RPS, FIT, and
auctions using levelized lifecycle costs and experience curves. Results
showed that RPS was more cost-effective than FIT in the short-term
from the consumer perspective.
Certain analysis results also claim that FIT and RPS have different
parts that are relatively more effective depending on the detailed policy
effect or evaluation criteria even within the same study. For example,
focusing on comparing price-based approaches with quantity-based
ones, Menanteau et al. (2003) examined the efficiency of different in-
centive schemes for the development of renewable energy sources.
They concluded that the quantity-based approach was more effective in
controlling the cost of government incentive policies, while price-based
approaches gave significantly better results in terms of installed capa-
city. Sun and Nie (2015) compared different effects of FIT and RPS
using a game theory model. The results showed that FIT had relative
strengths in installed capacity increase and R&D input stimulation,
while RPS was relatively strong in reducing carbon emissions and in-
creasing consumer surplus. Ritzenhofen et al. (2016) quantitatively
compared different renewable policy instruments, including FIT and
G. Choi et al.
RPS, using a long-term capacity investment model. They found both
policies increased renewable penetration, but FIT did so at lower cost
and RPS delivered more robust results.
Most extent studies focus on comparing effectiveness of FIT and
RPS, which is also an important criterion. However, increase in the
amount and capacity of renewable power generation is not itself a
purpose, but a means to achieve a more fundamental goal, such as re-
duction of greenhouse gas, environmental preservation, and enhance-
ment of energy security. Therefore, it is necessary to conduct research
that compares the economic efficiency of the two policies by calculating
the costs and ultimate benefits of implementing the two policies in the
economic perspective. Extant studies are also limited in their scope as
they compare policy effects of FIT and RPS by using the amount and
capacity of power generation that includes all renewable energy
sources, or by using only one energy source as the subject of empirical
analysis, such as wind power.
However, each renewable energy source has different character-
istics, which may result in different policy effects, as well. Therefore, it
is necessary to thoroughly analyze which of the two policies has a
significantly higher effect on individual renewable energy sources.
Finally, the analysis must be conducted within the same energy market
because the policy effects of FIT and RPS may vary depending on the
policy design of each country. In this aspect, this study overcomes the
limitations of previous studies that compared FIT and RPS.
2.2. Cost-benefit analysis in the field of renewable energy
CBA is rooted in the concept of economic efficiency. It compares the
gains and losses associated with an investment or with a policy (Pearce,
1998). It is also an established applied welfare economics approach
(Jamasb and Nepal, 2010) that has been historically and extensively
used for academic and practical purposes across fields, such as medical/
healthcare (McIntosh et al., 1999), environment (Atkinson and
Mourato, 2008), R&D projects (Kohmoto et al., 2009), law (Brown,
2004), and education (Blomberg, 1989). One of the most important
purposes of CBA is to determine the projects that have high economic
efficiency in order to efficiently use limited investment finances.
CBA has been used in various ways in the renewable energy sector
since the 2000s, and many related studies have been conducted re-
garding it, too. These studies analyzed economic feasibility by applying
CBA in using individual renewable energy sources or technologies
under a specific circumstance. For example, Diakoulaki et al. (2001)
analyzed the solar water heating system in Greece, Jamasb and Nepal
(2010) analyzed waste-to-energy in the UK, O’Mahoney et al. (2013)
analyzed electricity from biomass in Ireland, Santamaría and Azqueta
(2015) analyzed biofuels use in Spain, and Yano et al. (2016) analyzed
PV panels in the smart grid system in Japan. Furthermore, studies that
analyzed the costs and benefits of expanding renewable energy in
general (including renewable energy technology and renewable elec-
tricity) use in a single country, such as Germany (Breitschopf et al.,
2016), Spain (Burgos-Payan et al., 2013; Ortega et al., 2013), Greece
(Diakoulaki and Karangelis, 2007), and Japan (Esteban et al., 2012),
also used CBA.
Compared to the studies above, only a few studies have applied CBA
to renewable policies or supporting schemes. However, this research
trend has been increasing as the question of which policy to
choose—FIT or RPS—has gained importance. One typical example of
applying CBA to FIT is the recent study by Bean et al. (2017). They
assessed the cost effectiveness of three wind energy policy op-
tions—FIT, feed-in premiums, and investment credit policy—by using a
CBA approach. In the CBA, the levelized cost of electricity (LCOE) is
representative of the “cost” metric, while the levelized avoided cost of
electricity (LACE) represents the “revenues” metric. It found that the
most cost effective option for promoting wind energy development
from the government perspective is to use an investment credit policy.
As for research that has applied CBA to RPS, Barbose et al. (2015)
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Energy Policy 113 (2018) 239–248
estimated and summarized historical RPS costs and benefits in the
United States. The costs of RPS was described by percentage of average
retail electricity rates, while its benefit was divided into three cate-
gories—emissions and human health, economic development impacts,
and wholesale market price impacts. Results showed that RPS benefits
may at least be of the same order of magnitude as costs. Rouhani et al.
(2016) estimated the costs and benefits of varying 2020 California RPS
targets on various factors, including social welfare. Results indicated
that the planned mandated ratio of 33% RPS for California would not
maximize the net social benefit objective.
Previous studies that analyzed FIT or RPS using CBA individually
analyzed only one of the two policies. They also overlooked the var-
iation in effectiveness of the two policies based on renewable energy
source type. Furthermore, they failed to specifically identify the factors
of costs and benefits that may vary depending on individual players,
such as the government, energy producers, and the public. This study
introduces new insights that previous studies could not produce. It does
so by applying CBA for each renewable energy source and participant
type, while targeting the South Korean market, which has had experi-
ence under both FIT and RPS, since 2001 until the present, as the
subject of empirical analysis.
3. Methodologies for economic evaluation and scenario
3.1. Economic evaluation
To evaluate economic efficiency of FIT and RPS for each renewable
energy source, this study calculated the two indicators—benefit cost
ratio (B/C ratio) and net present value (NPV)—in order to conduct an
analysis in multiple aspects.
3.1.1. Cost-benefit analysis
Benefit cost ratio (B/C ratio) is an indicator that reveals the amount
of benefit that can be obtained compared to the cost that incurred in the
cash flow of an investment project. It can intuitively reveal the benefit
compared to the cost of an investment. The equation for B/C ratio is as
shown in Eq. (1).
n
B ∑ Bt /(1 + i)t
= nt = 0
C ∑t = 0 Ct /(1 + i)t (1)
Here, Bt is a benefit in t, Ct is a cost in t, i is a discount rate, and n is a
term of the project. The numerator is the total present value of benefits,
and the denominator is the total present value of costs. If the calculated
B/C ratio is greater than 1, the former is greater than the latter, thereby,
indicating that the relevant project has economic efficiency. If the B/C
ratio is smaller than 1, the relevant project has no economic efficiency.
3.1.2. Net present value
Net present value (NPV) is the present amount of all cash flows
incurred in the project, where the net benefit or net cost that is ulti-
mately incurred by the project is presented in monetary value. NPV is as
shown in Eq. (2).
n n
NPV = ∑ Bt /(1 + i)t − ∑ Ct /(1 + i)t
t=0 t=0 (2)
In other words, NPV is total present value of costs subtracted from
total present value of benefits. If NPV is positive, there is more benefit
than cost, whereas, if NPV is negative, there is more cost than benefit.
Therefore, the relevant project has economic efficiency if NPV is posi-
tive, while it has none if NPV is negative.
3.2. Perspective of economic evaluation
To evaluate economic efficiency of a specific project, different
perspectives must be applied depending on the main agent of the
G. Choi et al.
project. Both FIT and RPS systems for renewable energy are led by the
government, whereby energy producers act as participants. Thus, eco-
nomic efficiency can be evaluated in two different perspectives: gov-
ernment and energy producers. This study conducted analyses in both
perspectives in order to comprehensively determine the economic ef-
ficiency of the two systems.
FIT and RPS both aid in increasing the supply and generation of
renewable energy as per government policy aims. Furthermore, they
are accompanied by the government's fiscal outlays incurred, such as
compensation or issuing renewable energy certificates (REC).
Accordingly, it is necessary to analyze economic efficiency in the gov-
ernment's perspective regarding the efficiency of the impact of the
systems.5 Moreover, it is also necessary to analyze economic efficiency
in the energy producers’ perspective, as there must be adequate eco-
nomic incentives for the companies participating in the systems for
their efficient functioning.
3.2.1. Cost in the government's perspective
The cost incurred in the government's operation of FIT is the sum of
system marginal price (SMP) and compensation.6 Each power producer
gains revenue equivalent to the wholesale electricity price by selling
generated electricity to the Korea Electric Power Cooperation (KEPCO).
In this transaction, the wholesale price of electricity is SMP, which is
determined by the generator plant that has the most expensive power
generation cost among the generators operated in order to meet the
power demand. In FIT, power producers are compensated for the gen-
eration cost that cannot be recovered at the SMP. Thus, the sum of SMP
and compensation can be calculated as the cost in the government's
perspective. Here, the sum of SMP and compensation can be considered
the “FIT standard price” for each renewable energy source because
compensation is the difference between standard price and SMP for
each renewable energy source by definition.
The cost incurred in the government's operation of RPS is the sum of
SMP and REC value. In RPS, the government imposes the amount of
mandatory power generation on power producers; it issues REC for
actual power generation. Since the power producers receive not only
this REC, but also sell the generated electricity to KEPCO, the sum of
REC value and the power wholesale price, SMP, can be regarded as the
cost of the government. Here, the REC value (won/kWh) is the concept
that considers the REC price in the market (won/REC); the weight
(REC/MWh) of each form of renewable energy generation, represented
by the price for unit generation as shown in Eq. (5).
REC value (KRW / kWh)
REC price (KRW / REC ) × REC weight (REC /MWh)
=
1, 000(kWh/ MWh) (5)
Even though each energy producer generated equal amount of
power, REC is issued by assigning different weights depending on the
form of renewable energy generation. Thus, it is appropriate to use the
REC value instead of REC price in the market to calculate the REC cost
provided for each energy producer.
3.2.2. Benefit in the government's perspective
In the government's perspective, renewable energy supply can be
increased by FIT and RPS, with which three benefits can be obtained.
The first benefit is the “energy production” benefit—assuming that the
fuel cost of existing conventional power plant, which can be saved by
renewable energy generation, is a benefit. Since power producers can
reduce the amount of generation from existing sources using renewable
5
In South Korea, the costs for REC are calculated by the Korea Electric Power
Corporation owned by the government.
6
As Chang and Li (2015), Farmer et al. (2015), and Smulders and Vollebergh (2001)
pointed out, the administration cost is a practical concern. However, since no precise
administration cost data specific to Korea's FIT and RPS system could be found, this study
only considered direct costs associated with revenue and incentive for power producers.
242
Energy Policy 113 (2018) 239–248
energy facilities, the fuel costs for these existing energy sources can be
saved. In this study, we assumed that renewable energy generation
replaces some of the power generated from the LNG combined power
generation, which is in charge of middle and peak load in South Korea.
Therefore, we assume that the energy production benefit from FIT and
RPS is the fuel cost of LNG combined cycle power generation as the
benefit of energy production (Eq. (6)).
Fuel cost (KRW / kWh)
860(kcal/ kWh) × Fuel price (KRW /kg )
=
(1−Auxiliary power ratio) × Thermal efficiency (%)
× Heating value (kcal/ kg ) (6)
The second benefit is greenhouse gas reduction, wherein CO2 caused
by existing energy sources is reduced by generating power from re-
newable energy. CO2 reduction can be calculated with the amount of
CO2 incurred when using fossil fuels to obtain the same amount of
power generation with renewable energy generation. To convert CO2
reduction into monetary value, the price of South Korea's CO2 emission
was multiplied to obtain the greenhouse gas reduction benefit (Eq. (7)).
Since renewable energy generation is presumed to replace LNG com-
bined cycle generation, this study calculated the greenhouse gas re-
duction benefit by calculating the CO2 emission of LNG generation.
GHG Reduction (KRW ) = CO2 emission (tCO2)
× Carbon emission price (KRW /tCO2) (7)
The third benefit is air pollution reduction by calculating the eco-
nomic benefit from air pollutant reduction effect along with the re-
duction of CO2. Greenhouse gas reduction also reduces the amount of
other pollutants, thereby, producing other additional economic effects
in a process called the “co-benefit effect” (Nemet et al., 2010). The co-
benefit effect is represented by the economic benefit incurred when
reducing 1 t of CO2. Therefore, the air pollution reduction benefit can
be converted to monetary value by multiplying the aforementioned CO2
reduction by the co-benefit coefficient (Eq. (8)).
Air pollution reduction benefit (KRW ) = CO2 emission (tCO2)
× Co‐benefit (KRW /tCO2) (8)
3.2.3. Cost and benefit in the power producers’ perspective
In the energy producers’ perspective, costs for power producers are
the costs of installing or constructing renewable power generation fa-
cilities and of operating these facilities up to their economic life. This
study assumed that energy producers install facilities at the beginning
of the first year, and operate them from that year. For simplification of
analysis, this study excluded analysis on economic efficiency of energy
producers that already had the facilities before implementing the sys-
tems. The benefit that can be obtained by these producers participating
in FIT and RPS is the power market price and compensating amount or
REC value, which is the same as the cost in the government's perspec-
tive explained in Section 3.2.1. In other words, cost for the government
is transferred into benefit for energy producers.
Table 1 summarizes the cost and benefit items in the perspectives of
the government and energy producers for FIT and RPS. In addition to
the items listed in Table 1, a ripple effect, such as the dependence of
energy import and job creation, may be considered in CBA. However,
this study considered only the items that can be converted into amounts
of money because we intended to measure the economic efficiency of
FIT and RPS.
3.3. Economic efficiency evaluation analysis system
This study assumed that new energy producers enter the market
every year, and they are independent business operators that generate
power using different renewable energy sources. Therefore, we used
G. Choi et al. Energy Policy 113 (2018) 239–248

Table 1 operating expenses starting from the end of the relevant year, obtaining
Cost-benefit items of FIT and RPS. benefits from FIT or REC market.
RPS includes a detailed classification according to bio-energy and
Scheme Perspective Cost Benefit
waste energy fuels, whereas FIT included a relatively big category. For
FIT Government FIT standard price Energy production, the comparison, certain RPS categories were merged to match FIT. The
greenhouse gas reduction, air lignocellulosic biomass of RPS is classified as biomass, and the weight
pollution reduction
of by-product gas, waste, RDF firing, and waste gasification are calcu-
Energy producer Installation cost, FIT standard price
operation cost lated into the arithmetic mean, and classified as waste. The bio-energy
RPS Government SMP, REC value Energy production, of RPS was classified as biogas.
greenhouse gas reduction, air For the weight of REC by each renewable energy source, the average
pollution reduction was applied if there were different weights according to installation
Energy producer Installation cost, SMP, REC value
type, but for photovoltaic energy, the average weight excluded floating
operation cost
solar photovoltaic, independent generation facilities, and ESS connec-
tion facilities. Wind power applied only the weight of onshore wind
producers that were independent from energy source and time point in power, while excluding that of offshore wind power, while tidal power
their perspective, and conducted economic efficiency analysis for each generation applied only the weight of installation types with embank-
of these independent producers. Correspondingly, an economic effi- ments.
ciency analysis was conducted for each year on the renewable energy REC price was calculated using the annual average of monthly on-
source in the government's perspective, too. By doing so, the economic shore REC spot price by Korea Power Exchange. Among the sources,
efficiency of FIT and RPS for each renewable energy source can be photovoltaic power applied photovoltaic REC price, whereas other
determined, as well as the changes in the systems, according to the sources applied non-photovoltaic REC price. However, since the two
passage of time and enhancement of economic efficiency. REC markets were combined in March 2016, the same price has been
applied.
The discount rate used in economic efficiency analysis was applied
4. Results and discussion differently depending on government or energy producers’ perspec-
tives. As Short et al. (1995) stated in their study, the discount rate is a
4.1. Assumptions and data for empirical analysis measure of time value; it is influenced or determined by a wide variety
of factors. Therefore, it is necessary to set a different discount rate for a
To analyze the economic efficiency of FIT and RPS in South Korea, government seeking social benefits from the power producers seeking
we used the technology and market data under a series of assumptions. financial benefits. In this study, a social discount rate of 5.5%, which is
Table 2 shows the summary of the items in each data set. used to analyze the cost-benefit analysis of the government's public
Our main assumptions are as follows. First, we assumed that the investment, was applied to the government's perspective. The discount
energy producers fully covered the installation and operating expenses rate of 7.0% based on the WACC (Weighted Average Capital Cost),
of the power facilities. Energy producers installed new facilities by which has used to analyze the generation cost of power producers in
paying all installation costs at the beginning of each year, along with

Table 2
Data to calculate benefits.

Data Reference Note

Installed capacity – Assumed to be 1 MW

Initial investment and operating BNEF (2016), Korea Energy Economics Institute (2015) Assumed that the operating expenses increase according to the
expenses inflation rate
Capacity factor BNEF (2016), Korea Energy Economics Institute (2015) Assumed that it is consistent by year
FIT standard price Korea Energy Agency (2013a) Applied the average price when there are both fixed and variable
prices
Applied SMP instead of FIT standard price when the standard price
is smaller than SMP
REC weight Korea Energy Agency (2013b) Applied by obtaining the average of weights according to the
installation type
REC price Korea Power Exchange (Accessed 31 March 2017) Assumed that it increases according to the inflation rate starting
from 2017
SMP Korea Power Exchange (Accessed 31 March 2017) Assumed that it increases according to the inflation rate starting
from 2017
Exchange rate – 1100 KRW/USD applied across-the-board
Consumer price index Bank of Korea (Accessed 31 March 2017) Used the annual average consumer price index data
Annual average inflation rate 2.74%
LNG combined cycle generation Korea Power Exchange (Accessed 31 March 2017) Assumed that it is consistent with the efficiency of (50.21%) in
efficiency 2015 starting from 2016
Auxiliary power ratio Korea Power Exchange (Accessed 31 March 2017) Assumed that it is consistent with the auxiliary power ratio of
(2.29%) in 2015 starting from 2016
Emission factor Korea Energy Agency (Accessed 22 September 2016) 0.45tCO2/MWh
Price for CO2 emission right Korea Power Exchange (Accessed 31 March 2017) 10,506 won/tCO2
Co-benefit Nemet et al. (2010) Average of developed countries $44/tCO2 (2008 dollar)
Fuel unit cost Korea Power Exchange (Accessed 31 March 2017) Used annual LNG fuel unit cost data
Assumed that it increases according to the increase rate of fuel unit
costs starting from 2015
Fuel unit cost increase rate IEA (2015) 1.88%
Discount rate Korea Development Institute (2013), Korea Electrotechnology Government's perspective: 5.5%
Research Institute (2006, 2010) Producers’ perspective: 7.0%
Analysis period IPCC (2011) Economic lifespan applied

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Table 3
Economic efficiency analysis in the government's perspective – B/C ratio.

Photovoltaic Wind Hydro Tidal Fuel Cells Biogas Biomass LFG Waste

FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS

2002 0.475 – 1.425 – 1.642 – – – – – – – – – 1.640 – 1.654 –

2003 0.475 – 1.448 – 1.649 – – – – – – – – – 1.642 – 1.634 –
2004 0.228 – 1.438 – 1.653 – – – – – – – – – 1.641 – 1.615 –
2005 0.272 – 1.466 – 1.657 – 1.667 – – – – – – – 1.640 – 1.603 –
2006 0.278 – 1.489 – 1.656 – 1.656 – – – – – – – 1.659 – 1.619 –
2007 0.350 – 1.572 – 1.607 – 1.652 – 0.863 – 1.569 – 1.599 – 1.569 – 1.569 –
2008 0.356 – 1.592 – 1.606 – 1.649 – 0.876 – 1.570 – 1.599 – 1.570 – 1.570 –
2009 0.346 – 1.607 – 1.615 – 1.715 – 0.892 – 1.632 – 1.654 – 1.632 – 1.632 –
2010 0.370 – 1.608 – 1.613 – 1.657 – 0.921 – 1.586 – 1.617 – 1.586 – 1.586 –
2011 0.431 – 1.607 – 1.623 – 1.666 – 0.923 – 1.551 – 1.576 – 1.603 – 1.603 –
2012 – 0.611 – 0.722 – 0.681 – – – 0.459 0.722 0.562 – 1.012 – 0.879
2013 – 0.613 – 0.703 – 0.667 – – – 0.440 0.703 0.541 – 1.001 – 0.864
2014 – 0.607 – 0.695 – 0.661 – 0.661 – 0.432 0.695 0.533 – 1.000 – 0.859
2015 – 0.582 – 0.680 – 0.649 – 0.649 – 0.419 0.680 0.518 – 0.989 – 0.845
2016 – 0.557 – 0.664 – 0.638 – 0.638 – 0.406 0.664 0.504 – 0.972 – 0.828

Korea Electrotechnology Research Institute (2006, 2009), was applied
to the power producer's perspective.
4.2. Results of empirical analysis
4.2.1. Government's perspective
The B/C ratio in the results of economic efficiency analysis on FIT
and RPS in the government's perspective is shown in Table 3. In the
government's perspective, the B/C ratio exceeded 1 in all sources except
photovoltaic and fuel cells for FIT, thereby, proving that it has eco-
nomic efficiency. The sources with economic efficiency all had B/C
ratios at the level of 1.6, which shows that there is no difference in the
preference over the sources in the government's perspective.
Changes in economic efficiency of each source in FIT tend to be
consistent with the changes in the system and standard price. At the
initial stage of implementing the FIT system, a compensation amount
was offered to all sources for five years, and the term was increased to
15 years since 2004 for photovoltaic power and wind power.
Accordingly, the economic efficiency of photovoltaic power slightly
decreased in the government's perspective. In this perspective, wind
power did not have a significant effect on economic efficiency, as SMP
in 2008–2014 was higher than the FIT standard price of wind power
generation, thereby, obtaining the same SMP benefits from energy
producers regardless of the supporting period.
Moreover, economic efficiency of photovoltaic power and wind
power increased slightly in 2007. This is because the support fund
provided for photovoltaic and wind power producers was reduced by
applying the decrease rate to the FIT standard price during the sup-
porting period. For other sources, the supporting period was extended
to 15 years in 2007, which increased the government's expenditures,
thus, resulting in a slight decrease of economic efficiency.
In the government's perspective, economic efficiency seemed to
deteriorate in all sources except for photovoltaic power, as the system
was changed from FIT to RPS. Intuitively thinking, FIT is operated by
the voluntary participation of energy producers, whereas RPS is oper-
ated by the government that makes it mandatory for energy producers
to generate renewable energy.7 Thus, economic efficiency is expected to
increase in RPS in the government's perspective. However, for non-
photovoltaic energy source, the results were contrary to expectations.
Thus, it is necessary to examine the history of the South Korean RPS
system for interpretation. Since 2012, the REC market in South Korea
had a separate photovoltaic energy REC market. It provided a separate
7
In South Korea, power producers with at least 500 MW power generation facilities are
given the RPS obligation.
mandatory amount to protect the photovoltaic energy market. How-
ever, an oversupply of REC, compared to the mandatory amount of
photovoltaic energy, occurred, resulting in the decrease of REC price.
Accordingly, photovoltaic energy producers suffered deteriorated eco-
nomic efficiency under the RPS system, rather than the FIT system
through which they received compensation with a fixed price.
On the contrary, REC demand, which is the mandatory supply of
non-photovoltaic energy, was greater than REC supply, which resulted
in constant increase of REC price. With the constant increase of this
price, non-photovoltaic power producers could enjoy higher economic
efficiency under the RPS system, whereas the government suffered in-
creased burden of fiscal outlays. With such limitations in the dual op-
eration of the REC market, South Korea integrated both REC markets in
March 2016, which enabled energy producers to supply and purchase
REC regardless of whether they are photovoltaic or non-photovoltaic
power producers. However, there was a lack of supply compared to the
mandatory amount in the integrated market as well. Thus, both non-
photovoltaic and photovoltaic energy have high economic efficiency.
Some non-photovoltaic energy producers, such as biogas, biomass, and
LFG, have excessively high economic efficiency. Therefore, South Korea
suffered deterioration in economic efficiency, for the government, by
switching to the RPS system. The implementation of this system con-
stantly aggravated economic efficiency.
Table 4 shows NPV in the results of economic efficiency analysis in
the government's perspective. Since this study assumed that 1 MW fa-
cilities were installed for all renewable energy generation, this result
can be interpreted as the NPV of the government for a 1 MW power
plant. The net cost or net benefit may increase if the scope is expanded
to all power plants. A net cost of 7.3 billion KRW was incurred for each
1 MW power plant for photovoltaic energy in 2004, and a net cost of
approximately 2 billion KRW continued to be incurred in each power
plant even after switching to the RPS system. There are cases in which
NPV deteriorated remarkably in the RPS system for non-photovoltaic
energy sources—a typical example being fuel cells, in which the gov-
ernment covers a net cost of 23 billion KRW per 1 MW facility.
4.2.2. Power producers’ perspective
Table 5 shows the B/C ratio as a result of analyzing the economic
efficiency of FIT and RPS in the power producers’ perspective. In their
perspective, FIT had a section that fulfilled economic efficiency when
using photovoltaic, hydro power, biogas, biomass, and LFG generation
facilities. The B/C ratio of hydro power and LFG was 1.7 and 1.9, re-
spectively (in 2011) among the sources that fulfill the economic effi-
ciency. Energy producers operating these facilities could obtain rela-
tively higher economic benefits than others.
With FIT, the producers of wind power, tidal power, fuel cell, and

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G. Choi et al. Energy Policy 113 (2018) 239–248

Table 4
Economic efficiency analysis in the government's perspective – NPV (million KRW).

Photovoltaic Wind Hydro Tidal Fuel Cells Biogas Biomass LFG Waste

FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS

2002 −2,678 – 1,033 – 3,647 – – – – – – – – – 5,698 – 5,131 –

2003 −2,689 – 1,100 – 3,763 – – – – – – – – – 5,864 – 5,169 –
2004 −7,263 – 1,111 – 3,869 – – – – – – – – – 6,006 – 5,202 –
2005 −7,011 – 1,190 – 3,982 – 3,516 – – – – – – – 6,162 – 5,279 –
2006 −6,955 – 1,259 – 4,070 – 3,561 – – – – – – – 6,532 – 5,585 –
2007 −5,064 – 1,422 – 3,958 – 3,617 – −2,623 – 5,305 – 5,275 – 5,968 – 5,305 –
2008 −5,024 – 1,477 – 4,024 – 3,675 – −2,379 – 5,402 – 5,369 – 6,077 – 5,402 –
2009 −5,239 – 1,494 – 4,086 – 3,729 – −2,022 – 5,438 – 5,403 – 6,118 – 5,438 –
2010 −4,722 – 1,505 – 4,116 – 3,756 – −1,436 – 5,515 – 5,477 – 6,204 – 5,515 –
2011 −3,701 – 1,435 – 4,198 – 3,827 – −1,399 – 5,326 – 5,276 – 6,347 – 5,641 –
2012 – −1,801 – −1,539 – −5,161 – – – −19,852 −5,767 −11,268 – 194 – −2,055
2013 – −1,775 – −1,679 – −5,504 – – – −21,268 −6,291 −12,125 – 18 – −2,349
2014 – −1,793 – −1,714 – −5,655 – −4,948 – −21,680 −6,423 −12,365 – 1 – −2,408
2015 – −1,937 – −1,819 – −5,938 – −5,196 – −22,642 −6,815 −12,965 – −179 – −2,655
2016 – −2,119 – −1,968 – −6,306 – −5,518 – −23,949 −7,373 −13,793 – −467 – −3,024

Table 5
Economic efficiency analysis in the power producers’ perspective—B/C ratio.

Photovoltaic Wind Hydro Tidal Fuel Cells Biogas Biomass LFG Waste

FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS

2002 0.979 – 0.909 – 1.474 – – – – – – – – – 1.611 – 0.604 –

2003 0.983 – 0.920 – 1.506 – – – – – – – – – 1.656 – 0.631 –
2004 1.785 – 0.949 – 1.542 – – – – – – – – – 1.705 – 0.657 –
2005 1.785 – 0.957 – 1.580 – 0.335 – – – – – – – 1.759 – 0.683 –
2006 1.786 – 0.965 – 1.621 – 0.346 – – – – – – – 1.817 – 0.707 –
2007 1.456 – 0.934 – 1.710 – 0.355 – 0.955 – 1.180 – 1.271 – 1.932 – 0.732 –
2008 1.458 – 0.939 – 1.746 – 0.362 – 0.957 – 1.202 – 1.296 – 1.969 – 0.746 –
2009 1.483 – 0.926 – 1.742 – 0.361 – 0.935 – 1.189 – 1.281 – 1.947 – 0.737 –
2010 1.362 – 0.952 – 1.757 – 0.365 – 0.900 – 1.212 – 1.303 – 1.967 – 0.746 –
2011 1.181 – 0.933 – 1.761 – 0.365 – 0.913 – 1.226 – 1.325 – 1.941 – 0.735 –
2012 – 0.838 – 2.054 – 4.115 – – – 1.784 2.590 3.649 – 3.041 – 1.322
2013 – 0.827 – 2.091 – 4.201 – – – 1.848 2.637 3.754 – 3.039 – 1.333
2014 – 0.820 – 2.077 – 4.216 – 0.901 – 1.852 2.620 3.750 – 2.989 – 1.317
2015 – 0.830 – 2.095 – 4.276 – 0.914 – 1.887 2.642 3.806 – 2.977 – 1.319
2016 – 0.859 – 2.159 – 4.402 – 0.941 – 1.957 2.722 3.938 – 3.044 – 1.354

waste power could not benefit from sufficient economic efficiency.
Since FIT is operated by voluntary participation of energy producers,
failing to fulfill economic efficiency indicates that sufficient benefits
were not provided for them. This study assumed that the energy pro-
ducers fully covered the costs of installing and operating the renewable
energy facilities, while, in fact, those who received partial funding
support from the government can also participate in FIT.8 If wind power
and fuel cell producers received 30% support fund for installation, the
B/C ratio of wind power producers is 1.222 in 2011, which has eco-
nomic incentives. The B/C ratio of fuel cell producers is 0.995, which
guarantees a marginal level of economic efficiency.
However, even if tidal power and waste power producers received
30% of installation costs, they could not fulfill economic efficiency
under FIT. Tidal power generation has a lower FIT standard price
compared to the initial installation cost, thereby, failing to fulfill eco-
nomic efficiency. For energy producers, lack of economic efficiency in
waste power generation is also well displayed in their performance in
the actual system. Under FIT, one waste power producer newly entered
in 2009 and withdrew in 2014, and currently there is no power plant
operated under FIT. On the contrary, under RPS, where there are eco-
nomic incentives, 33 waste power plants operated as of the end of 2015.
Economic efficiency of energy producers under FIT changes
8 power plant. Renewable energy producers evidently gained high net
Only the facilities that have the government support fund of less than 30% of all
installation costs can participate in FIT.
symmetrically with the government's perspective. As the compensation
support period increased in 2004, the economic efficiency of photo-
voltaic power producers increased remarkably, whereas it decreased in
2007, when the decrease rate of FIT standard price was applied. For
other sources, the FIT rate support period was extended to 15 years in
2007, which resulted in a slight increase of economic efficiency for
power producers.
Contrary to the government's case, all economic efficiency tended to
increase for power producers except for photovoltaic when switching
from FIT to RPS. Intuitively thinking, this result is also contrary to the
expectation that economic efficiency will deteriorate in RPS, whereby
certain obligations are imposed on energy producers. As mentioned
above, the REC price of non-photovoltaic energy was set relatively high
during the switch to RPS, which enabled energy producers to generate
power with economic efficiency under RPS. In particular, wind power
and biogas producers showed a B/C ratio of 2 or higher in RPS, with an
excessively high economic efficiency in biomass and LFG that exceeded
3, while water power exceeded 4. Especially, with the increase in REC
price, economic efficiency is steadily growing, gaining excess benefit in
the REC market.
Table 6 shows NPV in the results of economic efficiency analysis in
the energy producers’ perspective. Since this study assumed that 1 MW
facilities were installed for all renewable energy generation, this result
can be interpreted as the NPV of the energy producers for a 1 MW
benefits under the RPS system, except for photovoltaic and tidal power.

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G. Choi et al. Energy Policy 113 (2018) 239–248

Table 6
Economic efficiency analysis in the power producers’ perspective—NPV (million KRW).

Photovoltaic Wind Hydro Tidal Fuel Cells Biogas Biomass LFG Waste

FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS FIT RPS

2002 −102 – −215 – 1,493 – – – – – – – – – 2,967 – −4,506 –

2003 −84 – −190 – 1,596 – – – – – – – – – 3,184 – −4,206 –
2004 3,827 – −122 – 1,707 – – – – – – – – – 3,422 – −3,904 –
2005 3,831 – −103 – 1,828 – −8,577 – – – – – – – 3,682 – −3,612 –
2006 3,836 – −83 – 1,957 – −8,432 – – – – – – – 3,965 – −3,340 –
2007 2,227 – −157 – 2,237 – −8,327 – −808 – 1,269 – 1,677 – 4,521 – −3,056 –
2008 2,232 – −144 – 2,351 – −8,227 – −777 – 1,430 – 1,832 – 4,702 – −2,896 –
2009 2,356 – −175 – 2,338 – −8,238 – −1,173 – 1,335 – 1,741 – 4,595 – −2,990 –
2010 1,767 – −116 – 2,387 – −8,196 – −1,866 – 1,518 – 1,903 – 4,791 – −2,957 –
2011 884 – −159 – 2,397 – −8,187 – −1,579 – 1,594 – 2,008 – 4,566 – −3,016 –
2012 – −791 – 2,504 – 9,818 – – – 14,160 11,227 16,394 – 9,904 – 3,668
2013 – −843 – 2,593 – 10,090 – – – 15,305 11,560 17,044 – 9,893 – 3,787
2014 – −880 – 2,560 – 10,136 – −1,276 – 15,379 11,437 17,017 – 9,650 – 3,606
2015 – −827 – 2,602 – 10,325 – −1,111 – 16,021 11,594 17,367 – 9,593 – 3,633
2016 – −686 – 2,754 – 10,722 – −763 – 17,283 12,161 18,179 – 9,919 – 4,027

5. Conclusion and policy implications
This study compared the economic efficiency of FIT and RPS sys-
tems that increase the supply of renewable energy for power generation
in South Korea. It uses the cost-benefit analysis to this effect. In parti-
cular, it analyzed the economic efficiency of FIT and RPS for both the
government and energy producers’ perspectives. It compared them in
multiple aspects in an analysis that focused on the year and renewable
energy source.
The results showed that there was a difference between the two
perspectives and between photovoltaic and non-photovoltaic energy. In
the government's perspective, photovoltaic energy showed an increase
in economic efficiency when operating under RPS, rather than FIT. This
is because the unit price fell due to increased competition that followed
an increase in the supply of photovoltaic energy. However, economic
efficiency deteriorated for non-photovoltaic energy under RPS. This is
because the REC price skyrocketed due to insufficient supply compared
to mandatory amount of non-photovoltaic power generation. Contrary
to the government's perspective, photovoltaic energy producers suf-
fered deterioration of economic efficiency under RPS, whereas non-
photovoltaic energy producers benefited from the economic efficiency
progress under RPS, as government costs benefited the energy produ-
cers.
The purpose of the support policy for renewable energy is to bring
down prices by increasing supply and reaching grid parity. In this as-
pect, the renewable energy policy in South Korea is not currently effi-
cient as the mandatory amount of renewable energy generation is
greater than market supply, thereby increasing prices. Therefore, the
South Korean government must choose a more reasonable method of
the two. First, it is necessary to improve the systems to increase the
supply of renewable energy. Currently, the key factor that hinders re-
newable energy supply is the lack of acceptance by local residents. As
Kwon (2015) pointed out, non-photovoltaic facilities in Korea have
been experiencing expansion difficulties due to resistance from local
residents. Thus, it is necessary to improve acceptance by establishing a
benefit-sharing system with renewable energy facilities. Second, the
government can consider lowering the mandatory amount of RPS with
respect to the conditions of renewable energy supply. This may lead to
lowering of prices by promoting competition among renewable energy
sources. These suggestions that address such fundamental problems are
expected to help the Korean government improve the RPS system in the
current situation, where the limitations of RPS, which is the imbalance
between supply and demand in the REC market, are pointed out.
The analysis results of this study may have policy implications for
REC market operation and appropriate REC issuance weight selection.
In other words, the weights of water power, biomass, and LFG that
show excessively high economic efficiency in the energy producers’
perspective must be lowered, whereas the weights of photovoltaic en-
ergy and tidal power that show low economic efficiency must be in-
creased. In addition, the optimum use of the policy instruments of the
FIT and RPS scheme, FIT standard price, and mandatory generation
amount, respectively, is essential. In the case of FIT, the level of the FIT
standard price (or compensation) determines the economic incentives
of the power producers and the level of the government's financial
burden. Therefore, the FIT standard price should be determined at a
level that not only allows generation companies to recover generation
costs, but also obtains cost-effective social benefits from the govern-
ment's perspective.
In the case of RPS, the mandatory amount of power generation is
important for determining REC demand and price. As shown in the non-
photovoltaic energy case of this study, if the mandatory amount is far
greater than the actual power generation—that is, the REC supply—the
REC price will rise and the power producers will have extremely high
economic efficiency. On the other hand, if the mandatory amount is too
small compared to the actual power generation, REC will be over-
supplied and the power producers will not be able to meet the economic
feasibility of renewable energy generation. This REC oversupply pro-
blem is evident in the case of photovoltaic energy in Korea. Therefore,
rather than imposing a generation amount of obligation to expand the
renewable energy, it is necessary to impose an appropriate amount of
mandatory generation by considering the supply condition of renew-
able energy and the prediction of the fulfillment of the obligations of
the power producers. Countries that want to implement FIT or RPS need
to pay attention to these implications.
However, this study has a few limitations despite key findings and
policy implications. First, it failed to consider the economies and dis-
economies of scale of renewable energy plants. While this study equally
controlled the capacity of the facilities for comparison among renew-
able energy sources, there actually may be economies or diseconomies
of scale depending on the capacity of the facilities, for each source.
Furthermore, this study failed to analyze the economic efficiency of
actual energy producers. Even though each renewable energy project
has different operating expenses, such as initial investment costs, in-
terest costs, taxes, insurance premiums, and rents, this study failed to
reflect such differences, but considered only standard costs. Finally, this
study failed to take into account the administrative costs incurred by
the government in implementing the FIT and RPS schemes. In the case
of FIT, administration costs—such as facility check, FIT standard price
adjustment, and monitoring of power generation amount—arise. In the
case of RPS, administration costs—such as REC issuance, computation
of the amount of mandatory power generation, performance evaluation,
and operation of REC market—occur. If the government's

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G. Choi et al.
administrative costs are taken into account, economy efficiency is ex-
pected to be evaluated more practically.
As of 2017, the FIT operation period is 10 years, whereas the RPS
operation period is merely five years. Once the RPS operation period
extends to a sufficient level, it will be possible to closely analyze the
effects of FIT and RPS in future research. By constantly comparing
economic efficiency of FIT and RPS, it will be possible to formulate
policy measures for sound development of renewable energy.
Acknowledgements
This work was supported by the Korea Energy Economics Institute
(KEEI) grant funded by the Korean Ministry of Trade, Industry, and
Energy (Grant No. 2016-04-0040-0-000).
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