Buildings and Energy

Will the US adopt EU type Feed-in Tariffs?

An important and troubling issue from one of the closing sessions at this week’s Solar Power International conference reveals that industry leaders are divided on the political feasibility and efficacy of Feed-in Tariffs..

Industry leaders discussed the issues and probability of Solar Feed-in Tariffs at state and national levels.  Stephen Lacey of RenewableEnergyWorld.com led the panel discussion.

A solar feed-in tariff (FiT) is an above-market or premium rate paid by utility companies per kilowatt-hour of electricity generated by solar power.  FiTs are regulated rates mandated by government and/or public utility commissions.  

Julie Blunden of SunPower opened the discussion with a concise description of the essential characteristics of a feed-in tariff:

• A “must take” provision – if the solar electricity is delivered to the grid, the local utility must use and pay for it
• Guaranteed price – a fixed price and stable pricing policy
• Unencumbered access to a grid connection

Ms. Blunden also advised that feed-in tariffs must be carefully designed and modeled before implemented.

A “policy and political pragmatist”, SunPower believes that FiTs are more likely and viable at the state level where energy policy is both more flexible and more adaptable to political and economic climates of individual utility service areas.

At the national level, federal policy derives from a long history of tax-based funding: tax subsidies designed to encourage economic development.  Cash based incentives like feed-in tariffs are not popular with federal lawmakers.

John Geesman, former commissioner on the California Public Utilities Commission and editor of GreenEnergyWar.com, noted that federal subsidies (30% Investment Tax Credit) have been historically vulnerable. The 30% cash grant may be difficult to renew. 

Mr. Geesman advocates feed-in tariffs at the state level to eliminate the uncertainty of federal policy change.  He also advocates changes in the Federal Power Act to remove barriers to state FiT programs.

Rick Gilliam of SunEdison opened his remarks by observing that FiT programs can be expensive and must be market driven so they do not deplete available funding.  He went on to say that solar already enjoys a very generous set of federal subsidies and state incentive programs. 

It could be politically dangerous to ask for too much and risk the good will that solar enjoys on capital hill.  Mr.Gilliam pointed to the California Solar Initiative and its system of declining incentive steps as an effective way to regulate a market and control the rate of development.

We were fortunate to have a European perspective from Adel El Gammal of the European PhotoVoltaic Industry Assocaition.  He agreed that FiTs must be properly designed and beg for a means to adjust tariff rates as market conditions change. As the market grows, the “degression rate” is adjusted based on target growth for a specified period, usually a year”

Mr. El Gammal offered several significant insights into the German Feed-in Tarrif.  He pointed out that the most successful program in the EU had the lowest FiT rate, and that the German FiT is currently declining in response to market conditions for system cost.

He went on to say that FiTs must provide a reasonable incentive, but not an unnecessarily generous rate.  Easy access to the grid and immediate payment are more important to incent participation.

Panelists agreed that Spain‘s foray into Feed-in tariffs was a disaster for many reasons.  With apologies to his Spanish colleagues, Mr. El Gammal stated that the program was clearly too generous, offered a huge rate of return, and the enthusiastic response from investors was unsustainable.

Worse, only “professional investors” were able to participate due to the complex and costly application process.  Spanish citizens saw this as misuse of public money to enrich wealthy investors.  Spain responded with a cap to protect limited funds – a move that quickly collapsed the solar market.

Julie Blunden added that that the Spanish feed-in program favored very large utility-scale projects, but failed to establish a commercial rooftop market segment.

At the same time, the Spanish solar program demonstrated that the solar industry, PV in particular, could ramp up quickly to meet demand.  It also generated improvement cycles in installation efficiency. SunPower cut 50% off the cost off their T-20 tracker.

The Federal Power Act (FPA) of 1935 figures prominently in feed-in tariff politics.  The Federal Power Commission wascreated to maintain reasonable and fair utility rates for consumers; its mandate is consumer protection. 

FPA requires State regulatory agencies to set wholesale electric prices for investor- owned utilities based on cost and a reasonable profit margin.  Most wholesale prices are in the $0.04 to $0.06 range.  A solar FiT is an above-market rate of perhaps $0.20 or more.

As Julie Blundon pointed out, at least one California utility has threatened to file suit against a feed-in tariff as a violation of the FPA. Regardless of the merits, an expensive and protracted lawsuit could effectively eliminate an FiT program.

She went on to say that California Public Utilities Commission staff proposes a “market-based” FiT, wherein solar developers would compete to sign power purchase agreements with California’s major utilities.  The CPUC staff proposal is, in part, a response to this threat.

John Geesman countered that eliminating the barriers to FiT in the Federal Power Act may be included in current federal legislation and is a preferred solution.

It may be important to note that SunEdison and SunPower will likely thrive in the highly competitive market that the CPUC staff proposal will create.  They will succeed in part through access to tax equity and other sources of capital that are in short supply in the current financial markets.

Under the heading of “Most Important Issue” there were several responses:  Julie Bluden expressed concern that no country has yet addressed policy issues beyond 2020 when solar reaches grid parity.  There must be a bridge, she said, between policy and the wholesale market.

Adel El Gammal reiterated that simplicity in the ability to connect to the grid is paramount.

Rick Gilliam of SunEdison warned that if FiT policy were based on recovery of costs plus a reasonable profit – it would sound very much like the policy used to regulate utilities – would this approach lead to regulation of distributed generation on homes and commercial buildings?

The audience was overwhelming in favor of FiTs.  Several used the Q&A format to argue that a $0.20 would result in only a 3% increase in most California utility bills.  Mr. El Gammal added that EU average increase was about 2.2%.  The audience responded with enthusiastic applause.

In closing, John Geesman predicted that 5-10 states will implement some form of FiT but with varying motives.  Some desire solar development for clean power, others for cost stabilization, and still others for regional economic development.

Adel El Gammal had the last word by noting that we are faced with an urgent need for renewable energy and that EU FiTs were the most successful approach.

In general, the mood of this conference reflected the pressures and disappointments of the banking collapse and ensuing recession.  Implicit in remarks by US panelists was a resignation to focus on near-term policy initiatives, even though none are powerful enough to meet widely-accepted renewable energy goals for 2020 and beyond.