Feed-in Tariffs: a Renewable Energy Solution in an Era of Tight Budgets

Date: 29 Nov 2010 | posted in: Energy | 0 Facebooktwitterredditmail

Most states had to cut spending to close budget gaps in the 2009 fiscal year, and many face additional shortfalls in 2010. These cuts often mean shorter library hours and larger class sizes, but tax credits for renewable energy frequently emerge unscathed.

The cuts in government services tend to fall hardest on the middle and working class, while the energy tax incentives tend to benefit wealthier members of the community. The good news is that it doesn’t have to be this way. Wind turbines and solar panels don’t have to compete with schools and hospitals.

The fix is before Congress and many state governments, and it’s called a renewable energy feed-in tariff. It’s a “plug and play” policy for renewable energy, guaranteeing a grid connection to anyone with a wind or solar project, a long-term contract with your utility, and a price for electricity generation sufficient to make a small profit. It means that many more can be clean energy producers rather than just consumers, spreading the economic benefits of renewable energy over the widest possible area. A good feed-in tariff policy says, “It’s not just for rich folks anymore.”

Here’s how it works. A homeowner buys a solar power system and has it installed on her roof. The local utility connects it to the grid and signs a 20-year contract to buy her solar electricity. The price it provides will give her a small return on investment (say, 6 percent). If the homeowner’s electricity adds any cost to the system, the additional cost (amounting to pennies per month) is spread over all the utility’s ratepayers.

A feed-in tariff helped Germany get 16 percent of its electricity from wind and solar in 2010, with half its renewable energy systems locally owned, bringing economic benefits to every corner of the country. It did so at a lower price than other policy options, because having a guaranteed price lowered borrowing costs for renewable energy developers. And Germany didn’t have to argue for renewable energy tax incentives at the expense of health care, transportation or education.

A well-designed feed-in tariff can replace the maze of government rebates, grants and tax credits with the simple requirement that electric utilities pay producers for the full cost and value of renewable electricity. This strategy results in at least three significant benefits:

The policy can create a more democratic, decentralized electricity system because it removes most of the barriers to local energy generation. This dispersion of renewable electricity production will help maximize the use of the existing electrical grid (transmission and distribution). Locally owned projects return three times the economic benefits to communities that absentee-owned projects do.

The feed-in tariff also means transforming individuals from energy consumers to producers. Unlike traditional renewable energy incentives that target large-scale developments, the feed-in tariff lets anyone become a renewable energy producer. And when people make the shift from consumption to production, their energy use becomes a conscious effort to find equilibrium, rather than simply writing a check for the electric bill.

Finally, the feed-in tariff takes renewable energy incentives off the government balance sheet so that legislatures don’t have to choose between children and clean energy. It may even increase government revenues as hundreds of new renewable energy producers pay taxes on their electricity earnings. Furthermore, since these producers won’t be corporations with legal departments dedicated to reducing their tax payments, there will be more revenue per project.

State and federal budget problems recur regularly, but there’s no reason these shortfalls should pit energy independence and economic development against schools, libraries, or health care — especially when there’s a better solution for promoting renewable energy development.

This is an opinion piece I wrote this spring, published on Minnesota Public Radio’s website.

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A Call for a Federal Feed-in Tariff

Date: 24 Nov 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

The CEO of a leading Indian solar energy firm issues a call for a U.S. federal feed-in tariff in yesterday’s New York Times:

Two things happened last month to give us pause to reflect on clean energy. First, Germany added the equivalent of nearly 1 percent of its electricity supply with solar energy between January and August. The first 1 percent took 10 years to achieve; the next 1 percent just 8 months. Second, the author of this revolution, Hermann Scheer, died.

The United States is one of the two top energy consumers in the world (along with China), so the world cares how fast America becomes convinced that there is a viable replacement to fossil fuels. The domestic American market should reach 1,000 megawatts next year. But to put that in perspective, Germany next year could add 1,000 megawatts in just 1.5 months.

To catch up, President Barack Obama needs to push for a federal feed-in tariff, or a mandate for states to have one, and fund it with a surcharge on conventional power — small enough to pass, but big enough to move solar away from cumbersome grants and tax incentives that come and go with the annual budget circus.

I recently wrote about the legacy of Hermann Scheer, and you can also read our comprehensive explanation of a feed-in tariff.

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Increasing On-Site Consumption of Distributed Solar

Date: 22 Nov 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

It’s rarely mentioned that a home with a solar array still gets most of its electricity from the grid.  In fact, without storage, a typical home solar array might only serve one-third of a home’s electricity use, even if the system is big enough to meet the home’s peak needs. The problem is a mis-match in … Read More

Hawaii Feed-in Tariff Pays Less Than Net Metering for Solar PV (and that’s ok)

Date: 10 Nov 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

On Monday we posted a news story about the launch of Hawaii’s feed-in tariff program, and in a review last night we found an interesting anomaly: the price paid for power for residential solar PV (projects smaller than 20 kW) is lower than the residential retail electricity price on most of the Hawaiian islands.  On the most populous island, Oahu, the price paid under the feed-in tariff is three-tenths of a cent per kilowatt-hour (kWh) higher than the retail electricity price, but it’s as much as 11 cents per kWh lower on other islands including Maui, Molokai, Lanai, and the Big Island.

Why pay less than the actual retail electricity price? 

First, Hawaii has a very strong solar resource.  A typical rooftop crystalline silicon PV array could produce nearly 1,600 kWh AC per year for each kW of DC capacity.  This is a capacity factor of over 18%.

Second, the state of Hawaii provides a personal tax credit for the lesser of 35% of the system cost or $5,000.  This is on top of the federal 30% tax credit.

So what does a Hawaiian solar producer need to make a reasonable return on their solar PV investment (8%)?  The following chart illustrates the prices needed for three different system costs.

While a typical individually contracted solar PV system will have a total cost of $8 per Watt or higher, group purchasing of solar PV systems (as discussed in this earlier post) has dropped installed costs down to as low as $4.78 per Watt in a group purchasing program in Los Angeles.  At that upfront price, Hawaiians that go solar would only need $0.15 per kWh to make an 8% return on investment!  Based on the actual FIT price of $0.21 per kWh, a Hawaiian group solar purchase could offer participants a 13% return on investment!

Note: You may wonder at the choice of installed costs for the chart.  These are based on Solarbuzz’s solar price index and our previous analysis of distributed solar PV prices.

Note 2: I’m awaiting confirmation that the Hawaii tax credit is taken off the system cost, rather than cost after the federal tax credit.  The FIT prices shown would rise by about 1.5 cents per kWh if the state tax credit is calculated on the system cost after the federal credit.  Update: the federal tax credit does not reduce the basis for the Hawaii state tax credit.

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Hawaii Rolls Out Feed-in Tariff for Distributed Renewables

Date: 8 Nov 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

The Hawaii Public Utility Commission moved ahead with the state’s feed-in tariff for projects under 500 kW, overruling objections from the state’s largest utility:

The decision came despite requests from Hawaiian Electric Company (HECO) to postpone the program over concerns that added distributed generation resources could destabilize the islands’ power grids.

…However, none of HECO’s objections “appeared to be fatal flaws that warranted any further delay in the development and implementation of the FIT [feed-in tariff] program,” according to statement released by the PUC.

The prices for the feed-in tariff program are as follows, with 20-year contracts:


Tier Technology Eligible System Size Rate
Tier 1 Photovoltaics Less than or equal to 20 kW $0.218/kWh
Tier 1 Concentrating Solar Power Less than or equal to 20 kW $0.269/kWh
Tier 1 On-Shore Wind Less than or equal to 20 kW $0.161/kWh
Tier 1 In-line Hydro Less than or equal to 20 kW $0.213/kWh
Tier 2 Photovoltaics Greater than 20 kW, less than or equal to 500 kW $0.189/kWh
Tier 2 Concentrating Solar Power Greater than 20 kW, less than or equal to 500 kW $0.254/kWh
Tier 2 On-Shore Wind Greater than 20 kW, less than or equal to 100 kW $0.138/kWh
Tier 2 In-line Hydro Greater than 20 kW, less than or equal to 100 kW $0.189/kWh
Baseline FIT Other RPS-Eligible Renewable Energy Technologies** Maximum size limits for facilities $0.138/kWh

The prices assume that the producer will take the Hawaii renewable energy income tax credit (35%). 

The program is capped at 80 MW of production: 60 MW on Oahu, 10 MW on the Big Island, and 10 MW for Maui, Lanai, Molokai combined.

Utility helps developers find capacity

The largest utility on the islands, HECO, has also published Locational Value Maps (LVM) to help developers identify places of greatest capacity on the existing grid.

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Provincial Feed-in Tariffs Spurring Community Power

Date: 5 Nov 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

With its feed-in tariff, the Canadian province of Ontario is set to become the leading community renewable energy center in North America. 

In an Oct. 12, 2010 report, [Ontario Power Authority] said that it has signed contracts for 264 megawatts of community-owned projects, and another 120 megawatts of projects owned by Ontario’s aboriginal peoples. The contracts represent 16 percent of Ontario’s 2,500 megawatts of feed-in tariff contracts to date.

No other jurisdiction in North America has made such a concerted effort as Ontario has to guarantee that a portion of the new renewable generating capacity to be built will be owned by its own citizens and native peoples through the province’s innovative feed-in tariff program.

This is in addition to Ontario’s microFIT program (a small renewable energy project program under the umbrella of feed-in tariff programs), which assures connection for homeowners and farmers wanting to generate electricity with solar panels for sale to the grid. There are 20,000 applications for microFIT contracts.

It’s noteworthy that despite Ontario’s success, Europeans still have significant leads based on their longstanding feed-in tariff policies.

…One-half of all wind generation in Germany, or more than 12,000 megawatts, is owned by local investors. The percentage of local ownership is even higher in Denmark and the Netherlands.

But North Americans are learning.  Vermont recently adopted a feed-in tariff, and the several other U.S. states and the Canadian province of Nova Scotia are also considering it.

Nova Scotia begins hearings Nov. 8, 2010 on the province’s community feed-in tariff program. The Nova Scotia Utility and Review Board will determine feed-in tariffs for large and small wind, biomass, and tidal power that will go into effect on April 4, 2011. Projects in the 100 megawatt program are set aside for Nova Scotians.

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Hermann Scheer’s Feed-in Tariff Legacy: 75% of World’s Solar PV

Date: 27 Oct 2010 | posted in: Energy | 0 Facebooktwitterredditmail

The death of German renewable energy advocate Hermann Scheer last week – dubbed the sun king or even the Stalin of renewables – is a unique opportunity to reflect on his largest legacy, the feed-in tariff, a policy responsible for the rise of the renewable energy industry.

The feed-in tariff offers prospective renewable energy producers three simple and powerful tools: a guaranteed connection to the grid, a long-term contract for their electricity, and a price for their power sufficient to make a reasonable return on investment.  The result of the feed-in tariff is to make renewable energy generation easier to develop and easy to finance.  It creates a sort of energy democracy where, to paraphrase the chef from the Disney movie Ratatouille, “anyone can generate”.  

The feed-in tariff was the dominate policy in Denmark as wind power rose on the back of local cooperatives to provide as much as 20 percent of that country’s electricity.  Thanks to Dr. Scheer, it was the policy that energized Germany’s solar industry, one that now generates gigawatts of new distributed solar PV every year.  In fact, as the feed-in tariff policy spread to other nations, it has been responsible for the deployment of 75 percent of all solar PV projects and 45 percent of all wind projects worldwide.  

Though many policy makers are not familiar with the feed-in tariff, the policy has spread to North America, shepherding $9 billion of investment to Ontario’s renewable energy market as well as shaping the market in Vermont, California, and Gainesville, Florida.  

To learn more about the feed-in tariff, check out our 2009 report: Feed-in Tariffs in America: Driving the Economy with Renewable Energy Policy that Works or visit the Alliance for Renewable Energy or the FIT Coalition websites.

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FERC Decision Clears Way for State-Based Feed-in Tariffs

Date: 25 Oct 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

It’s been a common argument against feed-in tariffs that federal law preempts states from establishing prices for renewable energy above the utility’s avoided cost (a figure meant to represent what it what otherwise cost the utility to get the same amount of electricity from another source, typically a natural gas-fired power plant). The FERC ruling in mid-October changes everything, allowing states to set the avoided cost rate based on the renewable energy technology in question.

From the ruling, as shown on wind-works.org:

“. . . Avoided cost rates may also ‘differentiate among qualifying facilities using various technologies on the basis of the supply characteristics of the different technologies’. . .”

“. . . We find that the concept of a multi-tiered avoided cost rate structure can be consistent with the avoided cost rate requirements set forth in PURPA and our regulations. Both section 210 of PURPA and our regulations define avoided costs in terms of costs that the electric utility avoids by virtue of purchasing from the QF. The question, then, is what costs the electric utility is avoiding. Under the Commission’s regulations, a state may determine that capacity is being avoided, and so may rely on the cost of such avoided capacity to determine the avoided cost rate. Further, in determining the avoided cost rate, just as a state may take into account the cost of the next marginal unit of generation, so as well the state may take into account obligations imposed by the state that, for example, utilities purchase energy from particular sources of energy or for a long duration.51 Therefore, the CPUC may take into account actual procurement requirements, and resulting costs, imposed on utilities in California. . .”  [emphasis added]

The FERC ruling does specify one difference between a U.S. state-based FIT and those in Europe or Ontario – the state must specify the amount of each renewable energy technology it wants, as well as the price (e.g. 100 megawatts of solar PV that is under 10 kilowatts).  

There’s also a very nice, plain English explanation of the impact of the FERC ruling from Jen Gleason at Environmental Law Alliance Worldwide.

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Vermont Says Its Feed-in Tariff Complies with Federal Law

Date: 20 Oct 2010 | posted in: Energy, Energy Self Reliant States | 0 Facebooktwitterredditmail

There’s been much discussion of whether state-based feed-in tariff policies comply with federal energy law, including PURPA and the Federal Power Act. Fortunately, the brilliant folks at NREL released a report earlier this year providing feed-in tariff policy design options for state policy makers [pdf]. Furthermore, the state of Vermont recently affirmed that their feed-in tariff policy conforms to federal law.

The PSB, the regulatory authority, ruled that no challenger, including DPS, had “demonstrated that the standard offer program is invalid”. Under Vermont law, the PSB has the “obligation to implement statutes passed by the legislature,” it said, and, thus, it was their duty to do so if the law is valid.

Some challengers suggested that the PSB suspend the program while it seeks clarification from FERC. The PSB ruled definitively saying that to seek clarification from FERC; the PSB would be making a determination that the program is invalid. The program is valid, says the PSB, therefore there’s no need to seek clarification.

Good news for a policy that delivers strong support for distributed renewable energy generation.

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