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FIT to Be CLEAN: EU's 'Feed-In Tariff' Rebranded for Americans

Long Island, N.Y., becomes one of the first places in the U.S. to adopt the newly made-over CLEAN model to promote solar energy.

May 14, 2012
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Officials in Long Island, N.Y., are rebranding a promising yet largely overlooked policy instrument to ramp up the region's solar power capacity.

Last month, the Long Island Power Authority (LIPA), the local utility, launched one of the nation's first CLEAN, or Clean Local Energy Accessible Now, programs.

The initiative uses the same feed-in tariff model that many credit for solar power booms in Germany, France and Spain—only with a different name.

Under the program LIPA pays solar operators a fixed rate of 22 cents for every kilowatt-hour of electricity they feed back to the grid for 20 years. The goal is to add 50 megawatts of commercial-scale solar energy, enough to power 6,500 homes.

Proponents say feed-in tariffs are key to stoking the clean energy economy, because they help solar and wind compete with conventional fossil fuels, provide private investors with a stable investment environment and create local jobs.

But advocates have struggled to sell the program in the United States—a problem they blame in part on its loaded name.

"Few things are as off-putting to people as the world 'tariff,'" said Richard Caperton, director of clean energy investment for the Center for American Progress (CAP), a liberal policy group. "It's an old-fashioned utility word that has more to do with [electricity] rates than taxes." CAP has adopted the CLEAN acronym in its advocacy of the model.

Stephanie Wang, director of programs and campaigns for the Palo Alto, Calif.-based Clean Coalition, which promotes CLEAN initiatives, said the name change is an attempt to "make sure that these programs exist in the first place."

Long Island is only one of about a dozen U.S. cities, regions or states to implement a feed-in tariff policy, compared to 23 European countries. By contrast, 29 U.S. states  have adopted mandatory renewable energy standards since the late 1990s, which require utilities to source a certain percentage of their electricity from clean power.

Some advocates claim that feed-in tariffs can be more effective at getting renewables off the ground than clean power mandates, because their long-term, fixed-rate contracts provide more certainty in the market.

In total, more than 60 places across the world have adopted feed-in tariffs. In Germany, a two-decade-old policy helped boost the country's share of renewables from 5 percent in 1991 to 20 percent in 2011, and created hundreds of thousands of green jobs, says Germany's environment ministry. Solar photovoltaic installations in particular increased more than 100-fold, from 2 megawatts to nearly 25,000 megawatts.

Genesis of a New Name: When and Why

The search for a more palatable term for feed-in tariff began two years ago and was led by MacWilliams Sanders Communications, a media consultancy in Amherst, Mass., that serves progressive groups. 

The agency asked focus groups in Los Angeles, Calif., and in the Colorado cities of Boulder and Fort Collins—where feed-in tariffs had been proposed—to come up with names for a policy that would guarantee clean energy developers preferential electricity rates.

The term Clean Local Energy Accessible Now, and its acronym CLEAN, emerged as one alternative. The firm asked a few hundred people in Michigan, Minnesota, Wisconsin and Vermont to choose their preferred name from a list of 20.

Feed-in tariff almost always ranked last, said Matt MacWilliams, the company's president. "People don't like the name itself, and they come up with really negative associations." By contrast, the name CLEAN consistently came out on top, he said.

Following the study's release in late 2010, the Clean Coalition promptly switched its name from its previous title of FIT Coalition. The three-year-old organization has since made rebranding the policy a key part of its efforts.

It hopes the name change will spark more U.S. interest in the model by distancing it from  European feed-in tariffs, which some Americans associate with a high tax on electricity, said Wang of the Clean Coalition.

"A lot of times Americans ... have concerns that Europeans are likely to pay more for green energy than is necessary," which isn't necessarily true, she said. "Folks want to know that these programs work in their backyard in the United States. They get very excited about the idea of new programs."

In Long Island, CLEAN to Fill In the Gap

In Long Island, the local utility is using its CLEAN initiative to tap a promising source of renewable power: medium-scale solar installations, said Michael Deering, LIPA's vice president for environmental affairs.

"We're trying to transform and sustain a solar industry here on Long Island that has been built up over the years ... and to lower the cost of solar," Deering said.

The utility already has a residential incentive program called "net metering," which allows solar-equipped homeowners and local businesses that deliver electricity back to the grid to save money on their utility bills. The program is open to homeowners with systems no bigger than 0.025 megawatts, about two dozen solar panels.

The state's renewable energy standard, which requires utilities to get 30 percent of their electricity from renewables by 2015, has driven the creation of large-scale projects, like Long Island's 32-megawatt solar farm at the Brookhaven National Laboratory, New York's largest solar project.

Commercial-scale projects, however—which are either too big for the homeowner incentive or too small to make financial sense for utilities—have fallen through the cracks, Deering said. Those include rooftop solar for factories or solar canopies for outdoor parking lots.

Wang of the Clean Coalition agreed. "There's really a gap in our national state and local policies for commercial-scale at this point," she said, adding that "the real opportunity with CLEAN" is in such midsize projects.

LIPA's CLEAN program takes effect in July and will offer contracts for solar projects ranging between 0.05 megawatts and 0.5 megawatts. In 2014, or once the program reaches its  cap, LIPA will decide whether to keep, tweak or expand the initiative. Funds for the program will come from a charge of 45 cents on residents' monthly utility bills.

So far, only LIPA and two city-owned utilities in California, in Palo Alto and Los Angeles, have adopted the CLEAN moniker for their feed-in tariff programs. Fort Collins is expected to start its CLEAN initiative later this year. 

Gainsville, Fla., which passed the first modern U.S. feed-in tariff for solar in 2009, has started to refer to its program as CLEAN but hasn't officially changed the name, Wang said. Ten other states or cities have feed-in tariffs that use a variety of different names, ranging from "standard offer program" to "renewable energy production incentive."

Evolution of Feed-In Tariffs: 1980s - Today

While the United States trails Europe in the number of feed-in tariff programs, it was California that conceived of, designed and launched the world's first feed-in tariff in 1984. The program helped bring 1,200 megawatts of wind power online. But in 1986, the state suspended the initiative when demand for contracts exceeded supply, and never restarted it.

"It was a very crude feed-in tariff ... not like what we use today," said Paul Gipe, an independent renewable energy analyst and an expert on feed-in tariffs. Since that time, he said, the feed-in tariff model evolved into a more complex and effective system for developing renewable sources.

Back then, California utilities were required to pay renewable energy producers a fixed price over 30 years at the "avoided cost" rate, or the amount the utilities would have paid to purchase or generate the electricity themselves from fossil fuel plants. 

Developers flocked to the program. Still, rates weren't high enough for producers to offset the high cost deploying of renewable technologies. By contrast, today's programs offer different avoided cost rates for each renewable energy source—by type, size of system and location—which allows producers to cover the cost of generating clean energy and make a reasonable profit.

Despite its flaws, Portugal implemented the original California model in 1988, and Denmark and Germany quickly followed suit. By the mid-2000s, 15 other European countries joined in, by now moving toward the more profit-oriented model.

Today, 23 of the EU's 27 member countries use feed-in tariffs, Gipe said.

The policy made its way back to North America when the Canadian province of Ontario adopted a feed-in tariff in 2006. In 2008, California reintroduced a statewide feed-in tariff for renewable energy projects of 1.5 megawatts or smaller, later raising the ceiling to 3 megawatts.

But complex electric power regulations in the United States deterred other states from adopting the more-modern feed-in tariff. While utilities were allowed to offer feed-in tariff purchasing contracts at the avoided cost rate, years-long confusion swelled about what that term meant, hampering interest.

Confusion, Opposition Around Feed-In Tariffs

For nearly a century, the Federal Energy Regulatory Commission (FERC) has had sole authority to set rates for the electricity that utilities purchase from power plants, known as wholesale power.

In California, some utilities argued that feed-in contracts under the new model infringed on FERC's authority. In 2010, the utilities and the California Public Utility Commission separately petitioned FERC to resolve the issue. In October that year, FERC clarified that utilities could offer separate rate incentives for each energy source based on current renewable energy production costs.

John Jimison, managing director of the Energy Future Coalition, a nonpartisan policy group in Washington, D.C., said many utilities still oppose feed-in tariffs because they take money away from their companies. Jimison has practiced regulatory and energy law for nearly 20 years. Most recently, he served as senior counsel to the U.S. House Energy and Commerce Committee.

He explained that, for utilities, having to buy intermittent electricity from solar and wind operators is more expensive than buying more reliable coal or natural gas power, or from generating that power themselves. "Utilities are not enthusiastic about having to do that," he said. The Energy Future Coalition promotes clean power development but doesn't have a position on feed-in tariffs.

Today, there are statewide feed-in tariff programs in six states—California, Hawaii, Maine, Oregon, Rhode Island and Vermont.

Challenges that a Name Can't Solve

Jimison, who hadn't heard of the CLEAN acronym, said making over feed-in tariffs with a new name might be "enough to modify its political acceptance."

Whether feed-in tariffs can achieve widespread adoption, however, will depend on more than the name, but on how the programs are designed.

Set the rates too low, for instance, and fewer renewable energy developers will seek contract offers. Set the rates too high, however, and demand for contracts may outpace supply, causing a spike in home electricity bills. In the past year, France, Germany, Italy, Spain and the United Kingdom have slashed their feed-in tariffs after generous rates fueled solar booms that countries could no longer afford, which in some places caused job-creating growth to go bust and gave feed-in tariffs a bad name.

Deering said that LIPA's rate of 22 cents per kilowatt-hour is probably "on the low side" for commercial projects. But he believes it's high enough "to move the industry" while also being fair to customers.

Wang of the Clean Coalition said at this point, it's all about gaining strength in numbers.

"Now that the movement is really taking off, there are homegrown examples that people can learn from," she said. "When it comes to getting renewable energy on the ground, there's something to be said about tried and true."

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