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

Date: 4 May 2012 | posted in: Energy, Energy Self Reliant States | 7 Facebooktwitterredditmail

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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John Farrell
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John Farrell directs the Energy Democracy initiative at the Institute for Local Self-Reliance and he develops tools that allow communities to take charge of their energy future, and pursue the maximum economic benefits of the transition to 100% renewable power.