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Abstract

Asia’s energy transition is a complex, multi-layered narrative of policy, market dynamics, and technological innovation. While many nations have set ambitious renewable energy targets, the path to achieving them is not linear. This article examines the critical role of Feed-in Tariffs (FITs) as a foundational policy mechanism that provided the necessary market certainty to accelerate early-stage investment in clean energy. We trace the evolution of these policies from simple, state-led mandates to sophisticated, market-based frameworks, such as Renewable Portfolio Standards (RPS) and competitive auctions. Through a series of regional case studies—including South Korea’s pivot from FITs to RPS, India’s volatile Renewable Energy Certificate (REC) market, and China’s nascent Tradable Green Certificate (TGC) system—we argue that the success of these initiatives hinges on a holistic strategy that links policy, infrastructure, and advanced operational tools. The conclusion is that while FITs were a crucial first step, a mature energy market requires dynamic policy frameworks that adapt to a country’s unique physical constraints and foster a competitive, efficient, and resilient energy future.

1. The First Spark: A Blueprint of Certainty

The global push for decarbonization has forced a re-evaluation of how societies generate and consume power. For decades, the energy sector was defined by its reliance on a predictable, linear model of large, centralized fossil fuel plants. This legacy system is now being replaced by a complex, dynamic ecosystem of distributed, intermittent, and weather-dependent renewable energy sources. This shift has introduced immense technical and financial uncertainty, creating a high-risk environment for private investment. In response, policymakers worldwide, and particularly in Asia, turned to a powerful, early-stage tool: the Feed-in Tariff (FIT).¹

A FIT is a policy mechanism designed to accelerate investment in renewable energy by offering long-term contracts and above-market prices to renewable energy producers.¹ This simple yet effective approach provides a crucial level of price certainty that de-risks a project for developers, enabling the financing needed to bring new technologies to market.¹ The core principle of a FIT is that it provides a cost-based purchase price for the renewable electricity supplied to the grid, which ensures a reasonable return on investment.¹ This makes it an ideal mechanism for nurturing nascent renewable technologies and encouraging industry entry by smaller firms.³ The efficacy of this model is well-documented, with a detailed analysis by the European Commission concluding that well-designed FITs are often the most efficient and effective way to promote renewable electricity.¹ To encourage the development of a diverse energy mix, these tariffs often differ by technology, location, and project size, creating targeted incentives for specific sectors.¹

2. The Evolving Toolkit: From Tariffs to Competitive Markets

While effective in its initial phase, the FIT model has a significant, and ultimately unsustainable, limitation: its reliance on generous subsidies and above-market pricing creates a direct financial burden on governments, taxpayers, or distributors.³ As renewable technologies became more cost-competitive and markets matured, the policy focus in many countries shifted to mechanisms that fostered competition and reduced the need for direct financial support.

This new, market-driven policy toolkit includes:

• Renewable Portfolio Standard (RPS): This is a regulatory mandate that requires electricity suppliers to source a specific percentage of their power from renewable sources.⁷ This policy effectively shifts the financial obligation from the government to the utility and promotes competition among different renewable technologies, compelling generators to compete on price and efficiency.³
• Tradable Green Certificates (TGCs): Also known as Renewable Energy Certificates (RECs), these certificates are the financial instrument that makes an RPS policy work. A single certificate represents the environmental attributes of one megawatt-hour of renewable energy, and utilities must acquire enough certificates to prove compliance with their RPS obligations.⁷ This creates a secondary market for certificates where prices are determined by supply and demand.⁷
• Competitive Auctions: These are a powerful mechanism for price discovery in mature markets.⁸ Governments issue a call for tenders for a certain capacity of renewable energy, and developers submit bids with a price per unit of electricity. The ensuing competition drives down the cost of renewable energy and helps avoid potential windfall profits for developers.⁸
• Feed-in Premium (FIP): This is a hybrid policy model that combines the stability of a tariff with the dynamism of a market-based system.⁶ Under an FIP, generators sell their electricity at the prevailing market price but receive an additional premium on top of that price. This reduces the financial burden on citizens, which can be a consequence of FITs, while still providing developers with a stable, long-term financial incentive.⁶

3. Asia’s Experience: Case Studies in Policy in Action

The transition from FITs to competitive, market-based mechanisms has not been uniform across Asia. The effectiveness of each policy is a function of a country’s unique market maturity, physical constraints, and political will.

• South Korea’s Pivot: South Korea provides a clear narrative of a country deliberately transitioning from a FIT to an RPS policy in 2012 to address the “financial burden” that the FIT model was placing on the government.³ The new RPS policy, which mandated that power producers with capacities over 500 MW gradually increase their renewable energy share, successfully promoted competition and technological development.³ However, a key study on the transition revealed an unintended consequence: the policy did not significantly reduce costs for land-intensive technologies like onshore wind due to the “gradual depletion of sites favourable to RE power plants”.¹⁰ In contrast, it did successfully drive down costs for technologies not constrained by land, such as fuel cells.¹⁰ This highlights that a one-size-fits-all policy can have vastly different outcomes depending on a country’s physical realities.
• China’s Mandate and Market: China’s policy journey mirrors South Korea’s, as it is transitioning from an FIT model to a mandatory RPS with a Tradable Green Certificate (TGC) system to address the fiscal burdens and power curtailment issues that plagued the earlier model.⁵ While the country’s “3,060” dual carbon target sets a clear goal for a low-carbon energy system, its TGC market is still in its infancy and faces significant challenges.¹¹ Trading volumes remain extremely low, accounting for only 1% to 11% of the total issued volume of TGCs, and prices are “much higher than the international average”.¹¹ This situation is a direct consequence of an immature market that lacks liquidity and a clear trading mechanism.¹¹
• India’s Green Obligation: India’s renewable energy policy is driven by state-level Renewable Purchase Obligation (RPO) mandates, which are primarily met through the purchase of Renewable Energy Certificates (RECs) traded on the Indian Energy Exchange (IEX).¹³ However, the data reveals a volatile and inconsistent market. The IEX reported an all-time high in electricity trade volume in July 2025, yet this broader market success was juxtaposed with a significant 48% year-on-year decline in REC trading volumes.¹⁴ In August 2024, REC volumes surged by over 737% at an all-time low price.¹⁷ This dramatic fluctuation suggests that the price signals intended to incentivize renewable energy investment are often undermined by non-compliance, regulatory uncertainty, and a fundamental imbalance in the supply and demand for certificates.¹⁴
• Japan’s Strategic Evolution: Japan’s energy policy is guided by its Strategic Energy Plan, which sets an ambitious target of 40–50% renewable energy by 2040.⁶ Recognizing the financial burden of its previous FIT system, Japan is transitioning to a Feed-in Premium (FIP) scheme, which exposes generators to market volatility while still providing a premium payment to incentivize investment.⁶ This approach is paired with a holistic strategy of grid modernization, the development of interregional grid capacity, and investment in energy storage to manage the variability of intermittent renewables.⁶ This is a pragmatic approach that acknowledges policy incentives are insufficient without the physical and technical infrastructure to support them.

4. Conclusion: The Policy Compass for a New Era

The narrative of renewable energy policy in Asia is a story of dynamic evolution, where the pursuit of decarbonization is a constant negotiation between political mandates, economic realities, and technological capabilities. The Feed-in Tariff was a powerful policy tool that provided the certainty needed to kickstart a nascent industry, but its limitations in a mature market are clear. As Asia’s energy markets evolve, the shift to more competitive, market-based mechanisms like RPS, auctions, and FIPs is necessary for driving efficiency and reducing costs.

The data from across the region offers invaluable lessons for policymakers globally. The success of any policy is not a foregone conclusion; it is deeply dependent on its ability to adapt to local contexts, from South Korea’s land constraints to India’s volatile REC market. The most compelling models, such as Japan’s holistic strategy, demonstrate that policy design must be integrated with robust investments in grid infrastructure, storage technologies, and advanced digital platforms. The ultimate success of Asia’s energy transition will be a testament to its ability to forge a deep and pragmatic link between ambitious policy and the operational realities of a rapidly changing world.