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Who Has the Most Cost-Effective Solar Feed-in Tariff?

| Written by John Farrell | 7 Comments | Updated on May 4, 2012 The content that follows was originally published on the Institute for Local Self-Reliance website at http://ilsr.org/cost-effective-solar-feed-in-tariff/

In a forthcoming report on U.S. feed-in tariff programs, I’ll provide a comparison of solar feed-in tariff (FIT, a.k.a. CLEAN Contract) rates across the United States.

Comparing published rates is not particularly helpful, however, because contract lengths vary (from 15 to 25 years) and the solar resource also varies widely.  For international comparisons (e.g. Germany), it’s also necessary to account for the currency exchange rate and the federal tax incentives that are routinely factored in to U.S. solar FIT prices.

Here’s a look at the methodology for normalizing the FIT rates for comparison, and two maps illustrating those prices.  The maps illustrate how Germany’s mature solar market means they pay much less for solar than U.S. FIT programs, especially when accounting for the federal taxpayer subsidy of local FIT programs.

First, here are the published solar FIT prices for all U.S. programs that support residential solar, including Germany’s program.  Contract prices are paid per kilowatt-hour (kWh) for the specified contract term.

Residential Solar FIT Rates (Germany and U.S.)

Location Price per kWh Contract Term
Germany 19.5 euro cents 20 years
Vermont 24 cents 25 years
Hawaii 27.4 cents 20 years
Gainesville 24 cents 20 years
Consumers Energy 26 cents 15 years
NIPSCO 30 cents 15 years

 

The first step is to convert all prices to U.S. dollars.  I use an exchange rate of 1.3 USD to euros.

Residential Solar FIT Rates (Germany and U.S.; USD)

Location Price per kWh
Contract Term
Germany 25.4 cents 20 years
Vermont 24 cents 25 years
Hawaii 27.4 cents 20 years
Gainesville 24 cents 20 years
Consumers Energy 26 cents 15 years
NIPSCO 30 cents 15 years

 

The next step is to normalize all contracts to 20 years.  So we adjust prices down on shorter contracts and up on longer contracts to get an equivalent 20-year price (in net present value).

Residential Solar FIT Rates (Germany and U.S.; USD, normalized to 20 years)

Location Price per kWh
Contract Term
Germany 25.4 cents 20 years
Vermont 28.1 cents 20 years
Hawaii 27.4 cents 20 years
Gainesville 24 cents 20 years
Consumers Energy 20.9 cents 20 years
NIPSCO 24.1 cents 20 years

 

Next we account for the variability in sunshine, normalizing to the solar insolation in Gainesville, FL (5.3 average annual kWh per sq. meter per day).  Jurisdictions with weak sunshine relative to Gainesville will have their prices drop (because they can pay much less per kWh) and places with better sunshine will have their prices increase.  Germany sees the greatest adjustment, because the solar resource quality there (in Munich) is just 3.28, compared to 5.3 in Gainesville.

Residential Solar FIT Rates (Germany and U.S.; USD, normalized to 20 years, Gainesville insolation)

Location Price per kWh
Contract Term
Germany 15.7 cents 20 years
Vermont 23 cents 20 years
Hawaii 28.6 cents 20 years
Gainesville 24 cents 20 years
Consumers Energy 16.9 cents 20 years
NIPSCO 21 cents 20 years

 

At this point, we’ve removed all of the disparities between U.S. solar FITs and can see that some programs (e.g. Hawaii) pay 40% more for solar than the lowest cost U.S. FIT (Consumers Energy).

Residential Solar FIT Rates (Germany and U.S.; USD, normalized to 20 years, Gainesville insolation)

But participants in the U.S. programs are likely, if not expected, to take advantage of the 30% federal tax credit for installing solar.  In Germany, on the other hand, there are no other financial incentives.  So an accurate comparison to Germany would inflate U.S. solar prices by 30%.  This apples-to-apples comparison shows that the Germans are paying 50% less for residential solar than comparable U.S. programs.

Residential Solar FIT Rates (Germany and U.S.; USD, normalized to 20 years, Gainesville insolation, no federal tax credit)

Location Price per kWh
Contract Term
Germany 15.7 cents 20 years
Vermont 32.8 cents 20 years
Hawaii 40.9 cents 20 years
Gainesville 34.3 cents 20 years
Consumers Energy 24.1 cents 20 years
NIPSCO 30 cents 20 years

The implications of this are remarkable.  Solar PV modules and arrays are sold on a world market, so hardware is unlikely to account for the price difference.  Rather, the maturity of the German market has significantly reduced the installation and balance of system costs for small-scale solar.

That’s actually a very hopeful sign for the U.S., as these jurisdictions are using the feed-in tariff to accelerate the growth of their solar market and capture those same cost savings.  Our forthcoming report will provide more detail on these U.S. feed-in tariff programs, including some lessons learned that may help them mimic the success of Germany’s solar FIT program.

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About John Farrell

John Farrell directs the Energy Self-Reliant States and Communities program at the Institute for Local Self-Reliance and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. More

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  • Joia Gibble

    It would be great to see this for U.S. commercial FiTs.

  • http://www.cleancoalition.org Sahm White

    I would add a clarification to the price adjustment related to insolation in the table ‘Residential Solar FIT Rates (Germany and U.S.; USD, normalized to 20 years, Gainesville insolation)’. This table shows the relative effective price received by a seller, not the price paid by a utility or ratepayer.

    Less sunshine does not mean that a utility buyer can pay a lower price, but that the effective value of the price they pay is reduced because a similar sized system will produce fewer kW hours; this results in less income for the producer even though their costs remain the same. If the installed cost of systems and operation is equal, a region with less sunlight needs to pay a higher rate per kWh to payback the cost of the production facility.

    Because equipment costs are a global commodity and the same for all locations, the lower effective value of Germany’s contract price is a testament to dramatically greater efficiencies in the cost of development, installation and operation that can be achieved through effective policy and the experience of a large mature market.

    Market development, including reliable market demand and efficiencies in financing, interconnection, permitting, tax treatment and installation are responsible for the success seen in such locales. These same factors can bring down costs everywhere else.

  • http://www.homeenergyllc.com Austin Williams

    Thanks for this comparison, what a great piece of research! We are fortunate enough to serve NIPSCO and Consumers Energy customers in our area. I do have a question, I did not think that there is possibility to take the FIT income and be eligible for the 30% tax credit, because the residential credit stipulates on the tax filing form that customers must use the electricity in their home (as opposed to sale). Is this incorrect? If so, it would mean better advantage for our customers and could help solar development tremendously!

  • Pete Thoenen

    Vermont current FIT (SPEED std offer) is $0.271. Was $0.30 until recently.