States Look to Feed-in Tariffs to Boost Renewable Energy

Rep. Inslee Working on National Feed-in Tariff Legislation

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California is often commended in renewable energy circles for its goal of getting 30 percent of its power from renewable sources by 2020. But the first stage of that goal — 20 percent by 2010 — has yet to be reached, and some experts say the state is simply running in place.

Craig Lewis pointed to one reason for this at a briefing on Capitol Hill. Lewis is the head of the FIT Coalition, a group that hopes to lead California toward implementing a feed-in tariff that will increase the market share of renewable energy in the state. He says California’s current strategy for increasing renewables’ share, relying on renewable portfolio standards, is stalling progress.

Lewis says California has actually reduced the percentage of energy it gets from renewables by a percentage point since the portfolio standards were introduced in 2002. Feed-in tariffs, he says, can turn that around.

Feed-in tariffs guarantee producers of renewable energy, including such small-scale producers as homeowners with solar panels on their roofs, a long-term contract in which they will be paid a price usually above the market price for the power they feed into the grid.

Renewable portfolio standards (RPS), in contrast, try to encourage renewables from the other end by setting up a quota for energy suppliers to source a certain amount of the power they provide from renewable sources. This usually includes the opportunity to buy credits from suppliers of renewable energy in a tradable credit scheme. Under RPS, renewable suppliers sell their energy at market prices; that is, without the usual price support a feed-in tariff provides.

California did enact a feed-in tariff at the start of 2008, but the price it offers those who pump renewable power into the grid is close to the market price and is widely seen as too low to have the desired effect of encouraging more renewable generation.

In the EU, 18 member states have feed-in tariffs or similar premiums by which renewable power is incentivized with a higher price. The European countries with the most robust feed-in systems — most notably Germany, Spain and Denmark — have seen much more growth in their renewable sectors than have countries with RPS systems. In Germany, feed-in tariffs are credited with a solar power boom that saw the country, clearly not the world leader in sunlight, emerge as the world leader in solar power generation.

States, Cities Take the initiative

In the U.S. the RPS quota approach is much more prevalent. But that may be changing.

The states of Vermont and Washington have implemented feed-in tariffs, as have cities including Sacramento, Calif., and Gainesville, Fla. Feed-in tariff legislation is currently under consideration in Indiana, Hawaii, Wisconsin and Maine, and California is looking into revamping its program.

The price systems are largely targeted at small-scale producers. In Sacramento, for instance, an eligible producer can generate no more than 5 megawatts, and all the producers in the program cannot exceed 100 megawatts cumulatively. Vermont producers can be no larger than 2.2 megawatts.

At the federal level, Rep. Jay Inslee (D-Wash.) has, in the past, introduced a federal feed-in tariff bill. On Thursday, he said he is working on reintroducing a version of that bill to establish a "feed-in tariff on a national basis."

"Some may say this sort of action should be at the regional or state level, … but we’re never going to solve the energy challenge unless we take national action," Inslee said.

But with the Democrats’ recent loss of their filibuster-proof majority in the U.S. Senate and health care and financial reform likely taking up the largest chunks of the upcoming legislative calendar, it remains to be seen whether that will be a possibility in the near future.

The Gainesville Experiment

Last March, Gainesville became the first city in the U.S. to introduce feed-in tariffs. Ed Regan, assistant general manager for strategic planning at the city’s utility and 30-year veteran of the industry, is noticeably excited about the effect his city’s feed-in tariff has had — both for his community and for others that have followed Gainesville’s lead.

He says the advantage is simple:

"Countries that have feed-in tariffs have a much higher percentage of renewable energy at much lower costs" largely due to the decreased risks that come from the long-term, set price contracts feed-in tariffs offer.

Gainesville set a cap of 4 megawatts per solar installation in order to be eligible to participate in the feed-in tariff. At the time, the tariff was announced, though, Regan said the whole state of Florida had only 2 megawatts worth of solar installed.

The city offered a 20-year contract that will pay 32 cents per kilowatt-hour of electricity produced. More importantly, the amount paid will decrease according to which year the equipment is installed and enrolled in the program, so those signing up last year get a higher payment than those signing up this year, and so on. This is because, ideally, the price of equipment and installation will go down in future years.

This tapering-off is one of the key features of a feed-in tariff system, according to experts. Germany, in fact, announced Friday that it would cut its feed-in tariffs again in April and July of this year.

Questions of Cost

Feed-in tariffs, in order to work the way they are intended, should have stable prices, long-term guarantees and be transparent.

Most current strategies for increasing renewable generation in the U.S. do not meet these criteria, said Maja Wessels of First Solar, a firm that produces thin firm solar modules in the U.S., Germany and Malaysia.

"In the U.S. we see policies that are very much stop and go, … that are there for two years and have to be renewed. This doesn’t offer the stability of transparency feed-in tariffs would," Wessels said.

The costs of feed-in tariffs are borne by the utility companies, but those costs are often passed on to consumers. There is some concern, then, that those slightly increased utility bills could disproportionately affect poorer energy users who spend a larger percentage of their income on basic needs, such as electricity. But the increase in utility bills is typically negligible. In Gainesville, for instance, it comes out to 74 cents a month, or half a percentage point of the average bill.

Proponents say that in the movement toward clean energy, this is a small and necessary price to pay.

"We’re getting nowhere fast with the policy mechanisms we’re using today," explains Lewis. "A lot of people think California is doing a lot with solar, but that’s only because they’re comparing it to other states. There is a solar revolution going on around the world; it’s just not happening in the U.S."

He thinks a "German-style" feed-in tariff, as opposed to the state’s limited, market-based current one, could be set up in California this year under proposed legislation.

Inslee sees "rapidly growing traction" at the federal level, but says it is an "educational process" and that will take time to get policymakers on board through educating them about the issue. Still, he says, "there’s no better policy than a feed-in tariff to give the investment community confidence to invest in" technology that will lead to a low carbon economy.


See also:

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How Congress Threatens to Undermine the Clean Energy Future: Sidelining Renewables