Can California Lead the Nation on Feed-In Tariffs?

Reviews are mixed, as efforts get underway in the state to pass a somewhat improved FIT bill

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California legislators have struggled to pass a "feed-in tariff" for renewable power that actually works. But a new push looks to fix past mistakes and make California a national model for a financing technique that has helped to turn Germany and Spain into world leaders in solar energy.

Feed-in tariffs guarantee higher electrical rates to qualified renewable energy projects. In jurisdictions across North America, there are over a dozen such programs in place. Paul Gipe, an energy analyst with the World Future Council, a research and advocacy group, graded them all in a recent report. California, he said, received an F.

"California is known for writing great press releases but comes up short on substance," said Gipe. The state "technically has a feed in tariff — it’s what we call a FITINO, a feed-in-tariff in name only."

Gipe said the problems with California’s current system — AB 1969, a 2006 law that directed the California Public Utilities Commission (CPUC) to create a feed-in-tariff program — boil down to its small size and poor pricing.

The system, officially created in 2008, caps out at 500 megawatts, and only projects up to 1.5 megawatts are eligible. Gipe said that that amount of renewable energy is insignificant in a state like California, which uses around 300,000 gigawatts of electricity annually.

The second major problem Gipe sees is the way the energy is priced. The current system, known as "avoided cost," bases the tariff on the price of a conventional fossil-fueled power plant that would be avoided by installing renewable energy. It doesn’t take into consideration the specific costs of the clean energy projects.

"It’s a regulatory policy that allows renewable energy to connect but it’s not a renewable energy policy," said Gipe. "In no place in the world has avoided cost resulted in the massive adoption of renewable energy. So why do we think that would do that here?"

Ted Ko, associate executive director of the FIT Coalition, an organization advocating for California’s feed-in tariffs, agrees that AB 1969 didn’t get the job done.

"Nobody wanted to build projects for that price, so it only put 14 megawatts into the ground," Ko said.

The organization recently announced a new board of directors that includes former CIA Director James Woolsey and Hunter Lovins of the Natural Capitalism Solutions. Ko said that the new board members all understand the importance of developing an effective feed-in tariff program in California that can set the standard for the rest of the United States.

Another bill, SB 32, was passed in 2009 and looked to fix some of the problems of AB 1969 by increasing the program to 750 megawatts and making renewable energy plants up to 3 megawatts eligible. It has not yet been implemented, however, and according to Gipe, it won’t improve things in California anyway.

"SB 32 only looks at solar photovoltaics — that’s one problem," said Gipe. "The second problem is that it only looks at the value of solar photovoltaics, not the cost of what it takes to install and make a profit. It is one step better than California’s FITINO, but no where near goes far enough to be a feed-in-tariff like you see in Germany, Spain, Portugal, Ontario, Great Britain and so on."


Proposed FIT Gets Better — But Not Yet Good

In making recommendations to the city of Los Angeles on a feed-in-tariff program, the Los Angeles Business Council and the UCLA school of Public Affairs conducted a study that looked at both statewide bills, along with a Renewable Auction Mechanism (RAM), proposed by the CPUC, where renewable energy would be procured on a twice-yearly auction basis.

They found that current policies "will not significantly contribute to Los Angeles’ renewable energy or economic development goals."

"The tariff structures are not high enough to cover the costs of in-basin solar projects or to provide any return on investment," the study, released in March, said. "In the case of the RAM, competitive forces will favor larger projects sponsored by professional developers. None of these programs or proposals will induce any significant in-basin solar."

To ensure better policy, the FIT Coalition is supporting new legislation in California, called AB 1106. The bill is currently in the senate appropriations committee and is one step from reaching the senate floor.

The legislation contains an earlier, much-reduced version of the more ambitious Renewable Energy and Economic Stimulus Act (REESA), Ko said. Still, the coalition believes AB 1106 will move California’s feed-in tariff policies forward. Ko said he is optimistic that they can get the legislation passed while Gov. Arnold Schwarzenegger, who has voiced support for the bill, is still in office.

Under AB 1106, two tiers of projects would be eligible; those up to 5 megawatts and those from 5 – 10 megawatts. The price would include cost of generation plus reasonable profit — the same as any other utility generation in the state.

Ko said the timing is good because the price of solar energy components have come down about 40 percent in recent years. He also said that a report coming from a research team at the University of California, Berkley over the next few weeks is expected to show strong economic benefits of a feed-in tariff system in terms of both job creation and revenue.

On jobs in particular, Ko said the data is "pretty significant, especially compared to other jobs bills in Sacramento right now.”

But Gipe only gave AB 1106 a D grade. He said the program and project caps are still too low to allow renewable energy generation to reach economies of scale.

"Why put renewable energy in a small energy ghetto when what we need is renewable energy of all sizes, big and small?"

The FIT Coalition similarly prefers a more robust program with feed-in tariffs for renewable energy projects of up to 20 megawatts. Ideally, they want the tariff to deliver an incremental two percent of California’s delivered energy from renewables every year through 2020.


The Ticket to California’s Laggard RPS Compliance?

California utilities did not come close to meeting their 20 percent by 2010 Renewable Portfolio Standard (RPS). And under current conditions, they may not even get there until 2014. This creates greater pressure and doubt for meeting the state’s next goal of 33 percent by 2020.

The FIT Coalition and others see a strong, comprehensive feed-in-tariff program — like those in Germany and Ontario — as the road to success.

Ko said that while there has been some resistance from Republicans in the state legislature, there have been no direct attacks, in part because it’s not a topic that ratepayers are particularly engaged in.

"If we raised the visibility on feed-in-tariffs, there probably would be attacks," Ko said. "But ultimately, it might be good to have more people understand how they help."


See also:

States Look to Feed-in Tariffs to Boost Renewable Energy

Nova Scotia Kicks Off Plan to Boost Small-Scale Wind via Feed-In Tariff

A Look at UK Energy Policy If the Tories Take Control