What L.A. Could Learn from Ontario as It Stumbles Toward a Solar Feed-In Tariff

The sun is usually shining on the Los Angeles area, but harnessing its energy in an economically viable way is proving hard to accomplish.

A new study from the Los Angeles Business Council and the University of Southern California, Los Angeles, shows why various proposed versions of a solar power incentive known as a feed-in tariff, or FiT, will struggle to get off the ground in the city, and it lays out some different ideas of how to turn that abundant sunshine into usable and affordable electricity.

One place Los Angeles could look for guidance is Ontario, where the new FiT approved six months ago has already received over 2,200 applications for solar projects. The Ontario plan holds promise for overcoming the high upfront cost of solar, but it also poses a challenge for a city like Los Angeles.

Building a Better FiT

The mayor of Los Angeles, Antonio Villaraigosa, has set a goal of getting 40 percent of all electricity used in the city from renewable sources by 2020, and an even more ambitious target of 20 percent by this year. In 2008, renewable energy sources accounted for 8 percent of the city’s power, meaning there is a steep climb to meet the near-term goal.

An ambitious FiT would be one step in the right direction. FiT policies allow businesses and individuals to install solar panels on rooftops and spare land and earn money from on the electricity they generate and send back into the power transmission grid.

“The Department of Water and Power has already proposed three different feed-in tariffs, all of which we analyzed and showed were not going to lead to any significant participation and generation of renewable energy,” said one of the report’s primary authors, J. R. DeShazo of the Luskin Center for Innovation at UCLA.

For FiTs to be effective, they need to provide enough economic incentive for participants to be able to offset the costs of installing solar panels, as well as monthly participation fees. And that’s the problem with the Los Angeles proposals and with the state’s current feed-in tariff. They don’t come particularly close to such a point, meaning they’re unlikely to draw many applications, DeShazo said.

An important principle of designing a FiT, DeShazo said, is to use a “cost-plus tariff” formula. The existing Los Angeles proposals base tariff rates on the market prices of solar or of other energy, meaning they will not be able to compete with the installation and participation costs.

(The study gives the example of a 4 kilowatt system on a Los Angeles home that can produce about 5,400 kilowatt-hours per year, enough to cover that home’s electrical use. In December, the installed cost for a small residential system was around $8.44 per watt. That’s an upfront cost of close to $34,000.)

Those upfront costs would take years to recoup through just the electricity savings under the kind of FiTs proposed for Los Angeles. The state’s best feed-in tariff rate for 2010 is about 10 cents per kWh. In comparison, a cost-plus system, like those found in Germany or Ontario, would base the tariff on participation costs, meaning a higher payout.

Another guideline to designing the tariff would be a focus on the most cost-effective sectors of the potential solar power market. This means that much of the solar power production would come from large-scale installations on commercial rooftops and parking garages.

“While we advocate an inclusive program that has capacity allocated for residential and for non-profit and government, we would allocate the lion’s share of the program’s capacity to the most cost effective segment, the large scale commercial segment,” DeShazo said.

The Ontario Example

The L.A. Business Council report examined FiT programs in other locales around the world to determine the best policies that could specifically help the sunny Southern California locale. In Ontario, a program begun in 2006 quickly reached half of its targeted 1,000 MW capacity, but much of the demand came from the then-largest allowable, 10 MW projects.

“The development of residential rooftop solar lagged behind due to the prohibitively costly interconnection and [program] contracting processes,” the report authors wrote, noting it was a problem shared by a Sacramento FiT as well as the proposals in Los Angeles.

A revision of the province’s FiT in October 2009 has revitalized it, with a key feature being a differentiation between small (less than 10 kilowatts) and larger projects.

The new tariffs, designed to more quickly pay for the cost of the projects while providing a consistent return, vary from paying 44 cents per kWh for large open-space projects to about 80 cents per kWh for smaller, home rooftop projects. Of 2,200 new applications initially received under that new program, about 1,200 were for the smaller variety, showing how specific encouragements can lead to better participation on a small residential scale.

Ontario is leaping ahead of the rest of Canada, and perhaps all of North America, with the FiT and associated projects. Last week, the Ontario Power Authority announced the approval of 185 renewable energy projects that will provide 2,500 MW of electricity.

The successful program comes with a price, though: All of the activity will push consumers’ electricity bills up as much as $360 per year. The main difference between Ontario’s FiT and Los Angeles’s plans might simply be a willingness to accept such rate hikes in the name of renewable energy progress.

“This is the most significant climate change initiative in all of North America,” said the province’s Energy Minister, Brad Duguid, at the unveiling of the new renewable projects. “It puts us ahead of the game, and that’s where we fully intend to stay.” Ontario hopes to close all of its coal-fired power plants by 2014.

LA’s FiT Prospects

Los Angeles also hopes to rid itself of coal electricity generation, although with a more modest deadline of 2020. For now, the overall goal of the FiT is to provide only 150 MW of power from solar. And conflicts between the mayor and the City Council are slowing progress toward fixing the holes in the proposed FiT.

The mayor and the city-owned utility want to use something called the Energy Cost Adjustment Factor, or ECAF, in order to pay for increases in renewable energy. DeShazo said this surcharge, added to ratepayers’ electricity bills, has traditionally been used to pay for short-term fluctuations in fuel prices, and the City Council has rejected the proposed rate increases that would add to the ECAF. Unlike in Ontario, adding cents to every kilowatt produced isn’t yet an acceptable option.

“We haven’t decided how we’re going to finance any of our renewables — out-of-basin wind, out-of-basin solar, in-basin solar or the others,” DeShazo said.

An integrated resources planning project over the summer could help bring the two sides together as the city attempts to move forward on renewable energy, he said.

And even if that process doesn’t help, DeShazo said, another statewide policy might push Los Angeles forward anyway. The state does have a net-metering law, a somewhat toned down version of a feed-in tariff that allows consumers to offset up to the cost of an electricity bill by producing their own power. The logistics of solar installation and changing energy climate in the future will likely make this an ever more attractive option.

“Rising energy prices combined with falling solar installation costs are going to conspire to make us an innovator whether we choose to be or not,” DeShazo said. “In other words, we have set lofty policy goals, but I think market forces are also going to get us there even if we don’t implement our policy goals as quickly as we want.”

See also:

Going Carbon Neutral: California Pours a Foundation for Cities to Build On

States Look to Feed-in Tariffs to Boost Renewable Energy

Britain Launches Comprehensive System of Feed-in Rates