Geothermal handbook: PlanninG and Financing power Generation t e c h n I c a L r e p o r t 2 / 2

National Policy Instruments to Support geothermal Power generation
geothermal power generation incentives
Governments in many countries use a wide range of policy and regulatory instruments to support the 
deployment of renewable electricity (Figure 3.4).
These can be broadly divided into two categories: investment support (capital grants, soft loans, 
tax exemptions/reductions on the purchase of goods) and operating support (price subsidies, 
quota obligations combined with tradable green certificates, and tax exemptions/reductions on 
the production of electricity). Operating support has the advantage of more directly influencing the 
ultimate outcome—renewable electricity delivered to the grid—by rewarding actual power production, 
not just installation. Investment support, such as subsidized capital and fiscal incentives, can play an 

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important role during the initial stage of market introduction when necessary funds are still limited. For 
important role during the initial stage of market introduction when necessary funds are still limited. For 
geothermal energy projects, investment support instruments are particularly important as they help 
directly address upfront barriers such as exploration risk and high investment costs.
Instruments providing operating support can be divided into quantity-based and price-based 
instruments. In a quantity-based scheme such as a renewable portfolio standards (RPS) policy, the 
quantity target (or obligation) is a decision set by policy, while the price is set by market forces. In 
a price-based scheme such as FIT, the market determines the quantity supplied at the price set by 
policy. Economic theory suggests that, under ideal conditions, quantity-based instruments and price-
based instruments have the same economic efficiency (IEA 2008). 
Most renewable energy sources receive public support in several different forms. Countries with 
strong renewable energy development agendas have introduced either FITs or quota obligations, 
such as RPS as their core policy, with other forms of support as supplements. RPS is sometimes 
combined with a system of tradable green certificates (TGC) by which the party obligated to meet the 
renewable energy quota can prove compliance. Both FIT and RPS policies require a strong, long-
term commitment from the government and an elaborate legislative framework. Mandatory off-take of 
renewable energy by the power utility is a key element of both FIT and RPS regimes. The incremental 
cost for the utility that is due to the cost difference between renewable and conventional energy has