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Feed-in Tariffs for Renewable Energy

| Written by John Farrell | No Comments | Updated on Jan 27, 2009 The content that follows was originally published on the Institute for Local Self-Reliance website at https://ilsr.org/feedin-tariffs-renewable-energy/

Vermont, Oregon, Gainesville, FL, and the Canadian province of Ontario have recently adopted feed-in tariffs for renewable energy.  The feed-in tariff means that any prospective renewable energy producer will get a guaranteed connection to the grid, a long term contract to sell their power, and a fixed price sufficient to recover their costs plus a reasonable profit.  The basic principle is democratizing energy: encouraging decentralized production from many producers and many renewable sources, spreading the power and economic benefits as widely as possible.

A feed-in tariff addresses a significant renewable policy shortcoming in the U.S.: well-heeled interest groups tend to dominate renewable energy discourse, and American energy policy reflects their paradigm of centralized generation dependent on high-voltage transmission lines.  This means that even though a typical wind turbine can supply 600 homes with clean, renewable power, those same 600 households can’t combine their resources to own their own renewable energy supply.  It also means that solar PV ownership is limited to people with sunny roofs, significant tax liability, and substantial cash on hand.

A renewable feed-in tariff addresses these gaps in energy policy, providing a simple method for any citizen to become a renewable energy investor and owner.  It’s based on the same deal a utility company gets – they build a power plant and the Public Utility Commission gives them a price to cover your costs plus a reasonable return on your investment.  That price is called a tariff, and this particular tariff allows anyone to feed-in renewable power to our electric grid.  In Germany, it’s helped boost renewables to 16 percent of electricity in a decade, with almost half of those renewable power systems owned by German citizens and investors.  Click here for a 10-slide presentation on why we need feed-in tariffs in the United States.

How is a feed-in tariff different?  Let’s look at a hypothetical wind project.

 

What are the benefits?

  • Avoids limitations and complexity of multiple incentives based on tax liability.
  • Reduces financing costs by providing a guaranteed stream of income for productive projects.
  • Avoids grid congestion limitations by supporting smaller scale projects that can plug in to existing sub-transmission and distribution grid capacity.
  • Democratizes ownership of energy production by letting anyone be a generator.

For more on the benefits of feed-in tariffs, see our report Feed-in Tariffs in America.
 

Does the United States have feed-in tariffs?

Yes.  Gainesville, FL, and the state of Vermont have full-fledged (if small scale) feed-in tariffs.  Watered down versions have also been passed in California, Oregon, Maine and Wisconsin.  A total of 15 states have passed or considered strong feed-in tariffs.

Legal Issues with Feed-in Tariffs

 

Recently, feed-in tariffs have been challenged as prohibited by the federal Public Utility Regulatory Policies Act, although none of the detractors has initiated an actual lawsuit.  The basic premise of the argument is that PURPA pre-empts states from setting prices over their regulated utilities.  However, there are at least three exceptions:

  • Projects under 20 MW may be able to get exemptions under PURPA
  • States can require the purchase of renewable energy credits tied to renewable energy projects
  • States can use public benefits funds to increase payments to electricity producers.

For more detail on the legal issues, we recommend the National Renewable Energy Laboratory’s report, Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints and Possible Solutions.

More on Feed-in Tariffs from ILSR

ILSR’S FEED-IN TARIFF CONFERENCE – 2009

ILSR held a feed-in tariff conference in Northfield, MN, in January 2009 to help bring visibility to this policy tool to people and organizations in the Midwest.  The meeting was attended by approximately 120 people -from regulators and legislators to renewable energy developers and activists.

  • We learned how cities, counties, non-profits and more individuals can become owners of renewable energy projects
  • We saw how renewable energy can promote more economic development
  • We discovered how developing renewable energy can be made more simple

View the presentations and video clips from the conference

Why we need a feed-in tariff (in 10 slides) – July 2009

A feed-in tariff has driven renewable energy to provide nearly 30 percent of Danish electricity and 15 percent of Germany’s. This brief, to-the-point presentation illustrates why the United States should adopt a feed-in tariff, a renewable energy policy that works. View the presentation

 

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Feed-in Tariffs in America: Driving the Economy with Renewable Energy Policy that WorksBy John Farrell – published April 2009

There’sa renewable energy policy with a record of incredible success, so why aren’t we using it in America?  This paper briefly explores the history of feed-in tariffs (FITs) in Europe – the rise and fall of this policy in Denmark and the rise and rise of FITs in Germany – and then outlines why it would be a much simpler, more cost-effective, and better economic driver for reaching America’s renewable energy goals. Denmark and Germany both used a feed-in tariff to drive renewable electricity generators to more than 15 percent market share.  This policy also resulted in large-scale local ownership, with near half of German wind turbines and over 80 percent of Danish ones owned by the residents of the region.   Feed-in Tariffs in America [pdf]

 

feedincoverlg.jpgMinnesota Feed-In Tariff Could Lower Cost, Boost Renewables and Expand Local OwnershipBy John Farrell – published January 2008

This January 2008 policy brief by John Farrell highlights how several European countries, and more recently the Canadian province of Ontario, have adopted a simple yet powerful strategy to expand renewable energy and benefit local economies. It is called a feed-in tariff: a mandated, long-term premium price for renewable energy paid by the local electric utility to energy producers. Evidence shows that a feed-in tariff achieves greater results at a lower cost than do other strategies like tax incentives or renewable electricity standards.  Minnesota Feed-In Tariff Could Lower Cost, Boost Renewables and Expand Local Ownership [pdf]

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About John Farrell

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. More

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