NREL: Feed in Tariffs Drive Competition, Costs Down for Renewables, While Increasing Growth
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The 144 page document, called A Policymaker’s Guide to Feed-in Tariff Policy Design (PDF Download), analyzes the results of Feed in Tariff legislation in over 75 countries, including the efforts so far in the United States.
What is a Feed in Tariff and Why Should I Care?
A Feed in Tariff (FiT) is an alternative to taxpayer-subsidized incentives for renewable energy programs. With a FiT, the government mandates electric utilities to pay a certain above-market rate for electricity generated by net-producers. Meaning, an individual with a good solar location can install solar panels and turn a profit.
There are a number of reasons that a FiT is more effective than cash and tax incentives towards spurring renewable growth:
- The FiT is a performance based incentive – Quality of system design and performance is determined based on a need for return on investment.
- The FiT does not depend on taxes – Since incentives rely on tax money, at some point those coffers will empty and the incentives run out. A FiT can be financed many ways, usually in the electric market. This takes a burden off of strapped state and federal budgets, and permits renewable growth to scale.
- The FiT offers a predictable return on investment – Solar energy systems offer a predictable rate of production whose value increases as the cost of electricity increases. Given the state of the economy, a renewable investment can be more secure than the stock market!
Key Findings of the Report
The NREL report does a good job of debunking feed in tariff myths, while also critically examining policy challenges faced abroad. Some of their more interesting findings:
- “FITs are responsible for approximately 75% of global PV and 45% of global wind deployment” (5)
- “The arguments in favor of a FIT policy are primarily economic in nature. These include the ability to … stimulate significant and quantifiable growth of local industry and job creation … [and] only cost money if projects actually operate” (27)
- “RE developers benefit from the long-term stability of the revenue streams generated from electricity sales, which helps foster a high level of investment security.” (121)
- “Another benefit is the direct competition for market share that is occurring under FIT policies in countries such as Germany, France, and Spain. This can drive greater private R&D investment, while helping spur further innovation and technological cost reduction” (121)
The report cites a number of primary, secondary, and tertiary benefits (pg. 18-20) for growing the renewable energy with FiT policies, such as:
- Increasing local jobs and developing the economy
- Reducing greenhouse gases
- Displacing load (to phase out coal fired power plants)
- Peak shaving (i.e. reducing the peak load conditions which CMP cites as the reason for the $1.4 billion grid upgrade)
The report then goes on to discuss in great detail the pros and cons of different models of feed in tariffs and the variety of ways they can be made into policy. Variations include payouts based on fixed rate prices vs. premium rates which fluctuate based on the market, to sliding scale rates based on economic conditions and those that vary based on resource quality and location.
You can read this in-depth report for free. (PDF Download)
Will a Feed In Tariff Make it to Maine (and New Hampshire)?
If you’ve been following our blog for a while, you’ve seen our coverage of Maine’s own attempt to establish feed in tariff, which was voted unanimously “Ought Not To Pass” in May, 2009.
A watered down version of the bill, providing for pilot community-owned electricity generation with caps on tariff payouts, was later passed in June 2009. The Midcoast Green Collaborative has a great write-up of the legislation as well as a history of Maine’s slow road towards a feed-in tariff.
For the moment, no concrete, meaningful feed in tariff legislation for Maine homeowners is on the horizon.
Meanwhile, New Hampshire has just passed legislation that will require utilities to pay customers that are net-generators of electricity for their surplus.
The rates to be paid for this electricity are yet to be determined – whether they are truly market rates or a lesser “avoided costs” rate, but should the legislation be successful in spurring renewable energy growth it is possible that true feed in tariff legislation will follow.
We’ll keep you posted as feed in tariff legislation continues to develop in Northeast!
Learn more about feed-in-tariffs and how other states and countries are using them to move solar energy forward: