A feed-in tariff, or FiT, is designed as an incentive to energy producers to develop renewable energy sources, and usually consists of a rate, fixed by legislation, that guarantees higher returns than conventional energy sources.
For example, if energy from fossil fuel generation were billed to customers 0.10 cents per kilowatt hour, energy from renewables would likely command 0.20 cents or more for the same kilowatt hour.
The feed-in tariff is already widely used in Germany, and similar programs in Greece, Italy, Turkey and South Korea have boosted renewable energy markets. Closer to home, Ontario, Canada and Gainesville, Florida, have also adopted German-style feed-in tariffs.
In Germany, the policy increased solar manufacturing and installation, thus driving down the cost of solar and making it more competitive with fossil-fuel generation. However, as a whole, the feed-in tariff system doesn’t work well where fossil-fuel generation prices are low (as in the United States), or where a plethora of utilities – sometimes serving the same state – create a welter of policies. Nor does it encourage energy conservation. And it has even been known to have the opposite effect of stimulating renewables, as witness the recent fiasco in the Spanish solar marketplace, where the rollback of 2008 FiTs has left the solar industry dazed.
It won’t work as a standalone solution in California, says Sue Kateley, executive director of the California Solar Energy Industry Association, who advises a combination of different programs, including a retail electricity program aimed at energy conservation, a utility-scale program, and a wholesale-electricity program.
In spite of that, California’s Attorney General, Jerry Brown, filed (on June 25) with the state’s utility commission arguing that feed-in tariffs are not only legal under federal statutes, but should be used to spur the growth of renewables.
It’s a significant policy maneuver, in that feed-in tariff opponents may find themselves outvoted and outwitted by the California Public Utility Commission (PUC), which is currently conducting hearings on the matter in conjunction with the state’s renewable portfolio standard (RPS; 33 percent by 2020).
Of course, since the AG is the legal arm of California government, but the PUC gets to set electricity rates and determines utility standards, it may turn out to be a regional political storm for which California is becoming famous (as witness Governor Arnold Schwarzenegger and budget opponents).
But it has inspired hope in feed-in advocates, and supports the conclusions of a March National Renewable Energy Laboratory (NREL) report that suggests FiTs and RPS’ can work well in conjunction.
As report co-author Karlynn Cory notes, RPS policies set the goal and let the market figure out the path, so the choice between RPS and Fits doesn’t have to be an either-or. A third NREL report focusing on FiT best practices will be issued later this year.
Ron Kenedi, vice president at Sharp Solar Energy Solutions Group, makes the either-or argument moot by noting that America doesn’t need feed-in tariffs to drive solar energy. In fact, Kenedi sees the lack of feed-in tariffs as a strength, allowing the U.S. solar industry – which is still taking shape, and likely won’t explode until 2012 – to “grow naturally” into its full solar potential, rather than being forced into a particular shape by legislation.
In the end, it may simply come down to government’s ability to legislate FiTs based on the type of technology, application (rooftop vs. ground installation), and size. However, doing this across the board in the U.S. – for 3,100 public utilities, 2,100 non-utility power producers, five independent system operators, and a transmission system that has only recently begun adapting to renewables – may represent the greatest challenge in setting prices and contract lengths.
In short, FiTs, for all their dynamism, may not fit.
