NREL Energy Analysts Dig into Feed-In Tariffs - Renewable Energy World

NREL Energy Analysts Dig into Feed-In Tariffs - Renewable Energy World

June 26, 2009
by Joseph B. Verrengia, NREL
Colorado, United States

Feed-in tariffs (FiTs) are the world's most widely used policy to drive renewable energy development. They have helped transform cloudy Germany into the world leader of installed solar power and photovoltaic manufacturing.

Now FITs are stimulating green energy investment in North America, too.
Locations as disparate as the city of Gainesville, FL, the province of Ontario, Canada, and the state of Washington recently have adopted measures establishing guaranteed long-term prices for clean electricity. A dozen more states and many more communities are considering similar energy policy proposals.

NREL energy analysts are digging into these complex policies in a series of technical reports designed to inform government policy makers, clean energy investors, utilities and other stakeholders.

Feed-in tariffs guarantee long-term payments at pre-established rates for the electricity generated from renewable sources. The production-based payments are often higher than market rates, but are on the verge of becoming competitive in specific locations for certain technologies such as wind power.

While utilities are obligated to buy the power, the long-term payments help encourage renewable energy development by reducing risks for investors. Any added costs are typically passed along to ratepayers and, for technologies like wind and landfill gas, may provide a hedge against electricity price volatility and large price spikes over the long-term.

According to the NREL studies, experience around the world suggests that FITs can effectively expand renewable energy deployment and remove barriers to renewable energy development, while creating jobs and helping meet renewable energy standards.

Best Programs Tailored to Local Conditions

States — or even local communities — may be tempted to copy the successful German model word for word. But, NREL analysts say that FITs are most effective when the policy design is adapted to local context.

"Every jurisdiction has unique characteristics that will influence the details of the FIT design and affect its success — these local differences are critical to consider," said Karlynn Cory (pictured below), co-author of State Clean Energy Policies Analysis (SCEPA) Project: An Analysis of Renewable Energy Feed-in Tariffs in the United States (PDF 1.1 MB).

The NREL reports examine a wide range of FIT programs. For example, Gainesville's tariff is limited to photovoltaic projects with a total city-wide cap of 4 megawatts (MW). Under Washington state's FIT policy, solar PV, solar thermal, wind, and anaerobic digesters are offered a payment that differs by technology and that increases if system components are manufactured in-state.

This spring, the Canadian province of Ontario revised its three-year old program to include a 20-year fixed price of as much as US $0.69 for every kilowatt-hour of solar power generated. In response, SunEdison, First Solar, Everbrite Solar and Nanosolar are developing both solar energy farms and manufacturing facilities near Ottawa, Kingston and other cities. (Below, left: NREL energy analysts Claire Kreycik, left, and Karlynn Cory have examined feed-in tariffs in North America and Europe. Credit: Joe Verrengia)

Timely Topic

With so many tariff options, Cory said it is timely for the Laboratory's Strategic Energy Analysis Center to tackle the topic.

"Understanding the policy design options allows decision makers to formulate more effective policies for their specific circumstances," Cory said. "This was a real opportunity for NREL to evaluate the key lessons learned in Europe and translate them to the U.S. context."

The second NREL study of FITs suggests that the policy can work effectively with renewable portfolio standards (RPS). States use RPS policies to set long-term requirements on how much renewable energy must be developed to meet consumer demand, boost clean energy development and reduce their reliance on fossil fuels.

Cory co-authored that report, Feed-in Tariff Policy: Design, Implementation, and RPS Policy Interactions (PDF 446 KB), with NREL analyst Claire Kreycik (pictured above) and Toby Couture, now of E3 Analytics.

Kreycik recently briefed New York state policymakers on how FITs can drive renewable energy deployment and job creation as they prepare to vote on an FIT proposal.

RPS mandates have been adopted in 29 states and Congress is considering a national standard. However, not all of these policies are designed to address investors' needs for revenue certainty. That's where FIT programs can be complementary. (Image: A technician installs meters at a new solar energy project in Gainesville, Fla. The city has adopted a local feed-in tariff to support the development of up to 4 MW of solar energy. Credit: Joe Raedle/Getty Images)

"RPS policies tend to set the requirement and let the market figure out how to get there," Cory said. "FIT policies can help utilities meet their RPS target. It doesn't have to be an either-or choice."

A third NREL report will focus on best practices for feed-in tariff policies. It will be completed later this year.

Joseph B. Verrengia writes for the U.S. Department of Energy's National Renewable Energy Laboratory (NREL) in Golden, Colorado.

This article originally appeared as a National Renewable Energy Laboratory feature article.

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REMINDER: Advanced Renewable Energy Contracts Webinar on Aug 18 @ 2 pm

The Indiana Renewable Energy Association is hosting a webinar on Advanced Renewable Energy Contracts or Feed-in Tariffs as follows:

Tuesday, August 18, 2009

2:00 to 3:30 pm EDT

SPEAKERS:

Chris Striebeck, Integrated Development Services

Laura Ann Arnold, The Arnold Group

State Rep. Matt Pierce

John Haselden, Indianapolis Power & Light

To sign up for this webinar, please send an e-mail to info@indianarenew.org. An e-mail will be sent with the call-in number and weblink to access the presentation.

Rep. Matt Pierce to Introduce Advanced Renewable Energy Contract Legislation in Indiana Again in 2010

Indiana Rep. Matt Pierce (D-Bloomington) is quoted in the article below that ran in today's New York Times. Rep. Pierce has agreed to participate in InREA's upcoming webinar on Feed-in Tariffs or Advanced Renewable Energy Contracts on Tuesday, August 18, 2009 from 2:00 to 3:30 pm EDT. The webinar orginally scheduled for Wednesday, August 5, has been re-scheduled. For more information on this webinar contact info@indianarenew.org.

August 3, 2009

House Will Get Another Shot at Feed-In Tariffs

By PHIL TAYLOR of Greenwire

With the Senate girding for a debate over sweeping legislation that would reduce greenhouse gas emissions and spur development of renewable electricity, two House Democrats are preparing a more limited bill with similar goals.

Reps. Jay Inslee of Washington and Bill Delahunt of Massachusetts are preparing a bill that would require utilities to purchase small-scale renewable energy from developers at rates equal to the cost of production plus a premium. The so-called feed-in tariffs proposal would set European-style guarantees for investors that many credit for a recent boom in solar energy in Germany.

"We have some brilliant Americans with brilliant business plans with brilliant technologies, but they don't have financing," Inslee said at a briefing last week on Capitol Hill. "The charm of the feed-in tariff is solid, take-it-to-the-bank security and confidence for the investing community."
Proponents say feed-in tariffs can be more effective than renewable-energy standards, such as the one included in the House climate bill by Democrats Henry Waxman of California and Ed Markey of Massachusetts, because they offer staggered rate incentives for each energy source based on current production costs. The initial rate that utilities would pay for solar energy, for example, would be higher than payments for less-expensive wind energy.

"The renewable-energy standard is good, and I'm a firm backer, but it has a weakness," Inslee said. "It's really only an incentive for the next-closest-to-competitive technology, frankly, which is wind right now."

The case for feed-in tariffs assumes that the cheapest renewable technology today won't necessarily be the cheapest technology in the future. Rate incentives that support many energy sources would create a race to become the next competitive alternative to fossil fuels or nuclear power, proponents say.

One widely cited model is Germany, which has become the world's largest market for photovoltaic systems and wind energy since passing its Renewable Energy Sources Act almost a decade ago. Germany more than doubled its national supply of renewable energy between 2000 and 2007 and was able to meet its 2010 target of 12.5 percent renewable electricity three years ahead of schedule.

"The Germans made a big and very important change," said former CIA Director James Woolsey, a panelist at last week's briefing and a partner in the "clean tech" division of investment group VantagePoint Venture Partners. "It's the reason that Germany -- a quarter of the size of the United States -- has six times as much solar."

There is a building in Munich, Woolsey said, that produces more solar energy on its rooftop than is produced in either Texas or Florida. The German boom in renewable energy -- driven in large part by the feed-in tariff -- generated 117,000 new jobs in the renewable power sector between 2004 and 2008, according to the German Environment Ministry.

Woolsey said feed-in tariffs could also improve national security by diversifying the United States' electricity production.

Today's electric grid relies on a sprawling network of transmission lines and centralized power plants that are vulnerable to attack, Woolsey said. Feed-in tariffs would expand the use of distributed generation like small wind and solar, helping reduce grid congestion and eliminating targets for terrorists.

"What we have today, with extremely high-voltage transmission lines and transformers sitting out behind cyclone fences next to highways, is vulnerable to physical attack; it is vulnerable to cyber attack," said Woolsey, adding that even amateur hackers can penetrate some off-the-shelf software programs that utilities use to monitor operations.

'Nightmares of PURPA'

Under a feed-in tariff proposal that Inslee sponsored last year, renewable energy developments of less than 20 megawatts would be given priority access to the grid and could sign 20-year contracts with utilities that guarantee a 10 percent rate of return. Rates would be tailored to fit the cost of production in different regions of the country and would be set by the Energy Department.

The "Renewable Energy Job and Security Act" would have paid for itself through an increase in consumer utility bills. The feed-in tariffs could also include built-in decreased payments to drive innovation and cost reduction over time.

Opponents of feed-in tariffs say their mandatory rate structures would raise electricity bills and would warp the free market as the Public Utilities Regulatory Policies Act (PURPA) did in the 1970s and '80s.

PURPA was meant to support the expanded use of renewable energy by requiring utilities to purchase power from non-utility producers at the "avoided cost" rate, or the amount the utility would have paid to generate the power on its own or to purchase it from another source.
"Thanks to PURPA, many customers were paying a higher price for electricity than what was selling on the open market," said David Owens, vice president of business operations at the Edison Electric Institute, at an April panel discussion at the Washington-based New America Foundation.

Owens argued against proposals to add a national feed-in tariff on top of a comprehensive cap-and-trade bill for greenhouse gases that includes a renewable energy standard. He said the national march toward renewable energy must happen at an evolutionary, not a revolutionary, pace if customers want to avoid being hit with excessive hikes in their utility bills.

"We have a range of options available to stimulate the development of renewables," Owens said.
"But I have difficulty if we seek to take another national approach that gives me the nightmares of PURPA."

Action by states, cities

In May, Vermont became the first state to pass feed-in tariffs for renewable energy, joining Ontario as the only state-level governments in North America to adopt such a policy.
The Vermont bill got a mixed response from lawmakers and was passed into law without the signature of Gov. Jim Douglas (R), who released a statement saying the bill "fails to recognize the current viability of renewable energy in a competitive setting and will needlessly increase costs to Vermont consumers."

Several other states -- including Michigan, Minnesota, Indiana, California and South Dakota -- are considering their own versions of feed-in renewable energy tariffs.

"The feed-in tariff has proven to be the best way to get quick movement in renewable energy development and create a lot of jobs," said Indiana state Rep. Matt Pierce (D), who has introduced a feed-in tariff proposal.

While Inslee and Delahunt's proposal would award states that adopt rates set by DOE and the Federal Energy Regulatory Commission, national feed-in tariffs have been criticized as an encroachment on states' rights to approve their own rates.

Gainesville, Fla., imposed the nation's first solar feed-in tariff in March, offering owners of new photovoltaic systems 32 cents per kilowatt-hour of electricity produced over the next 20 years.
The Edison Electric Institute's Owens, who argued against a national feed-in tariff, said the policy might be better implemented at the local and regional level, instead of coming from Washington.

"The city of Gainesville has benefited immensely through job creation," Owens said, such as through the millions of dollars in solar investments many anticipate as a result of the financial certainty offered by the renewable contracts.

Meanwhile, South Dakota's Public Utilities Commission is taking public comments on policies to support more wind development through rates that would reflect utilities' avoided costs, falling short of incentives offered by full feed-in tariffs.

Michigan became the first state to consider European-style feed-in tariffs with state Rep. Kathleen Law's (D) "Renewable Energy Sources Act" in September 2007. Law's bill was presented later that year at a National Caucus of Environmental Legislators meeting and became the inspiration for similar proposals in Illinois, Rhode Island and Indiana.

"Indiana has been so far behind the eight ball on renewable energy," said Pierce, whose bill died in committee without a vote. He said one of the biggest challenges was that so many lawmakers are unfamiliar with feed-in tariffs.

"Some have absolutely no idea what I'm talking about," Pierce said. "They hear the word 'tariff' and they think I want to tax something. ... Tariff equals tax or trade barrier to them."

'Worst name in the business'

Woolsey referred to "feed-in tariff" as "the worst name in the business." Others complain the term conjures up the idea of levying taxes on imported cattle feed.
Some have proposed calling them "advanced renewable energy payments" or "renewable buybacks," but for now, lawmakers are stuck with "feed-in tariffs," which was drawn from the German word for "electricity feeding-in law."

Pierce said he is planning to introduce another feed-in tariff bill in the 2010 session, by which time he suspects several more cities will have passed or considered feed-in tariffs. Being able to point to proven models, he said, will be important to gaining lawmaker support.

Copyright 2009 E&E Publishing. All Rights Reserved.

For more news on energy and the environment, visit www.greenwire.com.

REVISED: Join Us for InREA Intro Feed-in Tariff Webinar Re-Scheduled Aug. 18th @ 2 pm EDT

• Want to know what the buzz is about Feed-in Tariffs (FIT) or advanced renewable energy contracts?
• Did you miss the Indiana Renewable Energy Association (InREA) reception and meeting with FIT advocate Paul Gipe last September in Ft. Wayne?
• Want to know more about how FIT's compare to other policies such as net metering and a renewable electricity standard (RES) to promote renewable energy development?
• Did you know there is a feed-in tariff (FIT) proposed by Indianapolis Power and Light (IPL) currently pending before the Indiana Utility Regulatory Commission (IURC)?
• Want to know more about the state legislation introduced during the 2009 Indiana General Assembly on advanced renewable energy tariffs and the prospects for 2010?

InREA members Chris Striebeck with IDS of Indianapolis and Laura Ann Arnold with The Arnold Group of Indianapolis are planning an Intro Webinar on FIT's. Rep. Matt Pierce (D-Bloomington) will also participate in this webinar. Rep. Pierce introduced a FIT bill during the 2009 session of the Indiana General Assembly and currently plans to introduce another bill in 2010. This webinar will cover an introduction to FIT's as well as a status report on recent FIT proposals in the US and abroad. See this FIT update.

We anticipate scheduling additional webinars on this topic with additional speakers as well as other issues related to renewable energy development in Indiana.

Don't miss this important event. SIGN-UP TODAY!

The FIT webinar is scheduled as follows:

How Advanced Renewable Energy Contracts aka Feed-in Tariffs (FITs) can bring clean energy jobs and promote more rapid deployment of renewable energy resources and distributed generation (DG) in Indiana.

NEW DATE: Tuesday, August 18, 2009

2:00 to 3:30 pm EDT

Register for this webinar to receive 1) call-in information and 2) written materials please e-mail us at info@indianarenew.org.

Britain to Launch Innovative Feed-in Tariff Program in 2010; Proposes World's Highest Tariffs for Small Wind Turbines

Pictured from left to right: InREA Board Member Gary Washington, Paul Gipe and InREA Treasuer Leon Bontrager. Photo taken during Wind 101 Workshop, Sept. 12, 2008 in Ft. Wayne, Indiana.

July 23, 2009
By Paul Gipe

They said it couldn't be done, but Britain has risen to the challenge. Britain's Secretary of State for Energy and Climate Change Ed Miliband has released long-awaited details on the Labour Government's feed-in tariff policy.

Miliband, an up-and-coming politician in the cabinet of besieged Prime Minister Gordon Brown, has done what was once unthinkable, put a British stamp of approval on feed-in tariffs as a policy mechanism for developing renewable energy.

The move has potentially far reaching ramifications in the English speaking world where there has been reluctance to use full-fledged systems of feed-in tariffs, sometimes on ideological grounds. Now that Britain, Ontario, and South Africa, two of Britain's former colonies, have definitively moved toward implementing sophisticated feed-in tariff programs, there may be less reticence to do so elsewhere in the Anglophone world.

Of course, like politicians everywhere, Miliband had to rebrand feed-in tariffs to something more to his liking. His "clean energy cash back" creates yet another term for what everyone else calls, sometimes grudgingly, feed-in tariffs.

Nevertheless, the program's designers took their task seriously and didn't opt for a system of faux or false feed-in tariffs, what North American campaigners have begun derisively calling FITINOs, feed-in tariffs in name only.

The British proposal has also contributed several innovative new twists on feed-in tariff design that will mark the program as "made in the United Kingdom".

One new feature is the inclusion of tariffs for Combined Heat & Power (CHP). While not a first, it is one of the few programs to do so. Another feature of the proposed program is a distinct tariff for small solar PV systems on new homes, and a separate tariff for existing homes.

Most significantly, program designers have included a mechanism to encourage homeowners and small businesses to reduce their electricity consumption. For example, a solar PV generator will be paid for all their generation. However, they will receive a bonus, currently at £0.05/kWh ($0.08 USD/kWh, $0.09 CAD/kWh), for electricity delivered to the grid over and above their domestic consumption. Thus, if a homeowner is able to cut their domestic consumption, and sell more electricity to the grid as a result, they are paid the bonus on top of the posted feed-in tariff.

The proposed program, like the successful programs it was modeled after, was designed to "set tariffs at a level to encourage investment in small scale low carbon generation." This is in contrast to faux feed-in tariffs that set the tariffs on the "value" of renewable energy to the system as in the California Public Utility Commission's largely ineffective program.

British designers were instructed to calculate tariffs not on ideology or economic theory but on the tariffs needed so "that a reasonable return can be expected for appropriately sited technologies" to meet the country's renewable energy and carbon mitigation targets.

Unfortunately, the program's targets are timid at best, two percent of Britain's electricity consumption by 2020, and the tariffs are limited by law to projects less than 5 MW to protect the country's stumbling Renewable Obligation, the preferred mechanism for developing larger projects.

The two percent target requires the generation of only 8 billion kWh (TWh) per year. For comparison, Germany generated 40 TWh in 2008 from wind energy and more than 4 TWh from solar PV. France, Britain's longtime cross-channel rival, generated nearly 6 TWh from wind energy in 2008 from its system of feed-in tariffs.

Some of the proposed tariffs are not competitive with those on the continent, or those in Ontario. "For community-scale or larger on-site projects," says David Timms, a senior campaigner with Friends of the Earth (UK), "the rates [tariffs] are inadequate."

The tariff proposed for large wind turbines is low by international standards. Britain has some of the best winds in Europe. Nevertheless, many of the smaller projects that may be built under the feed-in tariff program may not be as advantageously sited as commercial projects under the Renewable Obligation. Consequently, the proposed tariff for wind projects from 500 kW to 5 MW may be insufficient to drive development.

Timms also adds that the "degression for solar PV is quite aggressive" at 7 percent per year and that the bonus payment of £0.05/kWh for export to the grid may not be bankable. Because the bonus payment will fluctuate with the "market price" it won't necessarily have a fixed value and, consequently, it will be discounted by banks providing debt for projects financed under the feed-in tariff.

If implemented as proposed, though, the British program will offer some of the highest tariffs for small wind energy in the world. The tariffs will rival those in Italy, Israel, Switzerland, and Vermont, possibly reflecting the British government's belief that it can encourage development of a domestic small wind turbine industry. For example, the tariff proposed for small wind turbines from 1.5 kW to 15 kW is £0.23/kWh ($0.38 USD/kWh, $0.42 CAD/kWh) about that paid in Italy and Israel.

The proposed program also includes a number of anti-gaming provisions to avoid breaking up bigger projects into several small ones to fit within the 5 MW project size cap. These will prevent companies from moving big wind projects from the Renewable Obligation to the feed-in tariff program.

Britain's feed-in tariff program is expected to begin in early April, 2010 after an extensive consultation. Below is a summary of the program's key elements.

• Program Cap: 2% of Supply, 8 TWh in 2020



• Project Cap: 5 MW Generator can be green field (doesn't have to be a metered customer)



• Contract Term: 20 years



• Program Review: 2013 Costs for the program will be borne by all British ratepayers proportionally
  

While limited in scope, Britain's proposed feed-in tariff program is as sophisticated, if not more so, as any proposed in the United States, and will put the country on the world map of innovative renewable energy policy.

Consultation on Renewable Electricity Financial Incentives 2009: Program Details

Consultation on Renewable Electricity Financial Incentives: Background Documents & Reports

This news update is partially supported by the Jan & David Blittersdorf Foundation in cooperation with the Institute for Local Self Reliance. The views expressed are those of Paul Gipe and are not necessarily those of the sponsors.

Paul Gipe

661 325 9590, 661 472 1657 mobile

pgipe@igc.org, www.wind-works.org

Rep. Matt Pierce Introduces Feed Law

Indiana Representative Pierce Introduces Feed Law Bill

January 16, 2009

By Paul Gipe , pgipe@igc.org

Representative Matt Pierce (D-Bloomington) has introduced HB 1622, the Advanced Renewable Energy Tariffs Act, into the Indiana General Assembly. The bill received first reading January 16, 2009 and was referred to the Committee on Commerce, Energy, Technology and Utilities. Representative Pierce is Vice Chair of the committee.

The Midwest has become a hot bed of activity around feed-in tariffs since the introduction of HB 5218, the Michigan Renewable Energy Sources Act, in the fall of 2007 by Representative Kathleen Law.

Following a presentation by Representative Law to the National Caucus of Environmental Legislators in early 2008, bills were introduced into the Illinois and the Minnesota state assemblies. Representative David Bly has announced that he plans to reintroduce his bill into Minnesota's new legislative session. Illinois representatives have been preoccupied with the impeachment of Governor Blagojevich and it is uncertain whether the Illinois bill will be reintroduced.

Representative Pierce announced on September 10, 2008 at DePauw University that he intended to introduce a bill calling for a full system of Advanced Renewable Tariffs like those in Germany, France, and Spain into the next legislative session. Since that time Pierce was named Vice Chair of the relevant committee.

Indiana has effectively no renewable energy policy and only a fledgling renewable energy industry. Nevertheless, there is some wind energy development in the north of the state, all for export, and an Italian manufacturer of gearboxes for wind turbines plans to open a factory near Muncie, Indiana.

HB 1622 is patterned after the Michigan bill and like the Michigan bill is intended to spur job creation in a state suffering from the collapse of the auto industry, long a major employer.

• HB 1622
• Status HB 1622

Paul Gipe is an author and reknowned expert on wind energy. His biography and resume can be found at http://www.wind-works.org/bio.html.

Additional information on Feed Laws including Tables of Feed-In Tariffs Worldwide can be found at http://www.wind-works.org/articles/feed_laws.html

Contact Information: Paul Gipe, 208 South Green Street, #5, Tehachapi, CA 93561-1741, USA Phone: +1 661 325 9590 pgipe@igc.org