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Tam Hunt: The Local Feed-in Tariff Solution
Guaranteed payments for renewable energy, generally known as feed-in tariffs, or FITs, have become increasingly popular in the last few years. Pioneered in the United States in the late 1970s and ‘80s and then perfected in Europe in the last 10 years, FITs have been very effective in bringing large amounts of renewable energy online quickly.
A new report from the National Renewable Energy Laboratory, one of our nation’s preeminent research organizations, has found that FITs have often been the most effective policy tool for new renewables, and the most cost-effective, too. This is a welcome surprise to many of us in the renewable energy industry. The report concluded that FITs can bring renewables online quickly and “often more cost-effectively than under competitive solicitations.” (“Competitive solicitations” refers to systems like California’s Renewable Portfolio Standard, which has struggled for years to achieve the mandated level of renewables.)
California and a couple of other states have “weak FITs” in place. California’s current FIT, enacted by AB 1969 in early 2008, has brought only about 10 megawatts of new projects online. California’s previous FIT, under the federal Public Utility Regulatory Policies Act that was effective in the 1980s, brought about 10,000 megawatts online! Clearly, we need more, as I’ve written about in previous columns.
The good news is that the Public Utilities Commission has proposed to expand, under its own very broad constitutional authority, the current FIT to 10 megawatts (up from the current 1.5 megawatt limit) and has suggested that the pricing process needs to be revisited. If pricing is improved — eliminating the “marke-price referent” formula, which unwisely links renewable energy to the price of electricity from a new natural gas plant — the PUC proposal could itself be a major boost for community-scale renewable energy projects throughout California.
At the same time, a number of new FIT bills are pending in the Legislature. AB 1106 is now the best of the bunch and will, according to the author, Assemblyman Felipe Fuentes, D-Los Angeles, be amended to allow for more favorable pricing than under current law. This is a key change and will make this bill far better than its competitors. It also expands the size cap to 20 megawatts, another necessary change.
But what about local measures? Can’t local governments and businesses get into this game? The short answer: yes. Here’s how:
I’ve written previously about Community Choice Aggregation, or CCA, and how it is a highly promising way for cities and counties to take control of their energy future. But here’s the new twist: CCA can also be used to enact a local FIT.
Just about every jurisdiction has numerous rooftops and parking lots that are aching to be solarized. The problem is that pricing under current policies and market conditions is often difficult — just look at the large white rooftops when you fly into any airport in California and ask yourself why aren’t they all covered in solar panels? The answer is that it’s often not economically feasible due to lack of sufficient on-site load or lack of interest by building owners in taking the time to develop their resource.
To be clear, here’s the problem: many rooftops and parking lots that could support solar systems from 100 kilowatts to about 500 kilowatts aren’t being solarized because this size segment is “orphaned” by current policies and market conditions. There is a huge potential around the state for solar on these rooftops and parking lots. (A wonky aside: in the state FIT bill, AB 1106, that I’ve been promoting, we don’t recommend that the state-level FIT provide price support for facilities in this range because of the potentially higher cost to ratepayers around the state. But with the local jobs and other economic benefits, as well as low- or zero-interest bonds available to local governments, there is the potential to make these types of systems cost-effective).
Under CCA, however, local governments can create a local FIT option because CCA gives rate control to the members of the CCA organization (cities and counties). CCAs can also phase in service to their customers. For example, the San Joaquin Valley Power Authority, which is the furthest along in California in becoming an active CCA organization, plans to serve its own members’ power needs first (government buildings), then bring in industrial, then commercial and finally residential customers. This is a phased approach that takes some of the risk out of the CCA business model.
Following the same strategy — but with a new twist — CCA organizations may implement CCA initially as a way to incentivize the development of 100-500 kilowatt solar systems on rooftops and parking lots. They can do this by buying this power from private developers under a local feed-in tariff, and using this power to meet their own needs. Local governments may even be able to use zero-interest federal bonds (CREBs or QECBs) to provide low- or no-cost financing opportunities for private sector entities wishing to build these solar facilities and sell power to the CCA organization.
This is an elegant and creative way to phase in CCA, utilize unused rooftops and parking lots for solar, and create economic opportunities — and green jobs — for many private sector entities. Under this approach, cities and counties may gain early support for CCA and strongly stimulate local economies into leading the charge for the green energy economy.
CCA, and the CCA-based FIT, is one of the most powerful tools available to cities and counties to accelerate the renewable energy transition and spur a broader movement in their regions.
— Tam Hunt is a renewable energy consultant and a lecturer in renewable energy law and policy at the Bren School of Environmental Science & Management at UCSB.
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» on 04.30.09 @ 04:18 AM
The energy companies have to pay above market rates for this energy. So the FITs just shift the cost to the energy companies who in turn will have to either raise rates or make cutbacks to stay even (layoffs, cutting corners, etc.). How is this a good thing? if an energy solution is not cost competitive then it is not ready for prime time. the focus should be on getting these alternative solutions to the point where they can stand on their own instead of taxing everyone for an inferior solution.
When solar energy is a viable alternative I will be first in line to cover my roof or whatever else I can, but not until it is a real solution.
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» on 04.30.09 @ 05:00 AM
I’m going to throw a FIT if people don’t start to understand that there are more urgent priorities than renewable energy in the short term. Such as much needed expendable energy and the revenue that can come from it - go away Tam- by the way, is that a smile or a sneer? Looks like the sneer of a snot nosed brat.
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» on 04.30.09 @ 10:19 AM
Tam, though I appreciate your enthusiasm for renewable energy (I’m for solar and very against biofuels), I can’t help but notice the lack of cost/benefit analysis in your postings. I assume you have done the same research I have and have found that there is no way possible to “convert” fossil fuel sources to renewable without a huge economic impact to the most vulnerable of the world’s population. As your research into renewable energy has shown you, the biggest gainers from cheap plentiful fuel have been the world’s poor. Converting to scavenging type systems would not only reduce total energy output but also raise the cost considerably, to the point of driving the world into the Stone Age. There is simply not enough wealth at the top to make up the difference. Your funding ideas are smart but really amount to wealth transfer rather than wealth creation. Further, since I do advocate solar power, it would be unwise unless we make sure the supply chain for their manufacture stays here.
However, there is a solution to this problem. First forget about CO2 production. We should be encouraging CO2 production not discouraging it. Drop any and all affiliation to Al Gore’s new religion and then start looking at energy production from a scarcity of carbon stocks point of view. As you know, hydrocarbon fuels are simply the best form of energy storage for transportation we know of (same thing life itself uses all over our planet). So burning hydrocarbons at stationary generating plants is foolish.
Second we cannot produce enough renewable fuel to replace these hydrocarbons at stationary plants. Fortunately physics and geology have provided a solution in nuclear and geothermal. This is where the majority of our concentration should be, converting and expanding electrical production with nukes and geothermal. That will liberate a substantial amount of carbon stocks for use as transportation fuel.
Lastly we promote the wide spread use of solar PV to augment centralized electricity production. Solar PV is great for this since it is highly decentralized and does not require more transmission infrastructure to support it.
By doing these three things the U.S. can liberate itself from foreign hydrocarbon sources and bolster its carbon stocks. This will be necessary for the day when mined hydrocarbons are no longer available and we will need to start manufacturing them ourselves in real time. At that point our expanded use of nuclear and geothermal would make production of carbon stocks economically viable. All of this could be done without punishing the world’s poor to satisfy a new religious belief.
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» on 05.01.09 @ 02:29 AM
Dear Who Pays,
There are major financial benefits that are enjoyed by Community Choice Aggregators and public utilities more generally, namely: access to very low cost (or no cost) money, no profit requirement, no taxes, and no need to pay exorbitant executive salaries. Moreover, the investor-owned utilities are often highly inefficient because they are guaranteed a set profit on money expended. This is known as “cost-plus” accounting and it incentivizes waste. Government is not known for being very efficient either, but in this case we have very good evidence that cost savings will accrue to ratepayers under Community Choice because public utilities around the state charge ratepayers an average of 25% less than their investor-owned utility counterparts. These savings can, with Community Choice, either be given back to ratepayers or used to invest in renewable energy - like rooftop solar - which have higher upfront costs than traditional power production facilities but often lower long-term costs because there are no fuel costs and very minimal operational costs.
More generally, many sources of renewable energy are in fact competitive with fossil fuels and nuclear power today (which is in fact very expensive, contrary to popular belief). In particular, wind power is highly competitive, and geothermal, biomass and small hydro are often highly competitive. Solar is still fairly expensive but coming down in price (finally) rapidly. A recent report from New Energy Ventures found that solar has dropped 30% in price in the last year or so - a very welcome change.
And with a lot of federal money now committed to renewable energy and energy efficiency R&D;, I have full confidence that renewable energy will continue dropping in price - while fossil fuel prices return to their high levels as global economies recover from the current recession. See CEC’s county energy blueprint’s Chapter 8 for a detailed accounting of the savings that will accrue ($1.5 billion each year by 2030) from switching to renewables. It’s at http://www.fossilfreeby33.org.
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» on 05.01.09 @ 02:45 AM
AN50,
We can’t forget about CO2 production - I suggest you read the IPCC’s Fourth Assessment Report, a consensus set of documents produced by the over 100 nations that are part of this effort. It included scientists and policymakers from the Bush Administration, who agreed with its conclusions: human impacts are the primary cause of the observed warming over the last 50 years. Contrary to the views of the few naysayers still out there (who are becoming louder in inverse proportion to their number) global warming science has in fact become stronger and stronger. There is now little doubt that anthropogenic greenhouse gases are the main culprit in warming over the last 50 years.
Re nuclear, review recent cost estimates for new plants and you’ll realize that nuclear makes no sense simply from an economic point of view. It will be far more expensive than renewable energy and energy efficiency, as a general proposition. Moreover, wind and solar can be “firmed” either with natural as or other renewables such that they can become baseload sources of power.
I’m with you on geothermal. This actually comprises about 5% of all California’s electricity. A recent report from MIT, The Future of Geothermal, highlighted the nationwide potential for “enhanced geothermal,” which goes a lot deeper into the crust than traditional techniques - but costs a lot more currently. Google.org is investing in this technology and I’m optimistic that within a decade we’ll have enhanced geothermal ready for deployment at reasonable prices.
Last, the world’s poor are the ones who will suffer most from climate change and dwindling fossil fuel resources. Your concern for them should lead you to become a strong advocate for renewable energy and increased energy efficiency. If you review recent UN cimate change negotiations, you’ll see that many of the world’s poor nations are the ones yelling loudest for mitigation because they know that their populations will bear the biggest brunt.
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» on 05.02.09 @ 08:52 AM
Tam, if you read my response to your last article “We Are All Environmentalist Now” you would know I don’t deny GW or human contribution. What I question is the real fantasy that humans can do anything sustentative about it, except bankrupt themselves trying. You would also get the since that I don’t buy the notion that human beings are at once evolved creatures of this planet and at the same time everything we do is foreign to the environment as though we landed here from some other universe. Are we part of our environment or not? If we are then everything we do is as natural as everything a termite does (the largest biomass on the planet and biggest contributor to GW).
I have yet to debate a single GW fanatic that will actually talk science instead of quoting highly politicized crap from the ICCC. Answer the following: how much of the increase in CO2 is human caused and how much from other causes? Should be easy to get a grasp on that since we know how much hydrocarbon fuel we burn and breath 6.5 billion humans expel. How much of that increase is due to the warming of permafrost? Termite digestion? How much is caused by oceanic saturation preventing the absorption of CO2? Tam, what evidence do we have that CO2 is a GHG in the environment? Studies show that at the low atmospheric concentrations we have on our planet that CO2 does not trap heat like it does in the lab, seen those studies? Why such fear and hype over the increase when our planet did just fine for 100’s of millions of years with 4 times the CO2 now present in the atmosphere? Not only has the planet been historically warmer but that warming, more CO2 rich, atmosphere supported a much higher level of biomass and variety of life than currently exists. The hysteria over GW is nothing but a game of fear mongering. Gone is the sincere debate over what data we have and what it means. Everyone talks the new talk, but no one has a freaking clue as to what it means, not even you.
I laid out three things that need to be done to prevent plunging humanity into the Stone Age, conserving carbon stocks for transportation, developing a massive conversion of electrical generation to nuclear and geothermal and augmenting stationary energy production with renewable sources (mainly decentralized solar PV). We need to do this now and start preparing for the day when our mined hydrocarbon stocks are gone. The foolishness that pervades the environment community is legendary. The notion that humans can live on this planet and not affect its environment is silly. That does not mean we have to crap in our own living room or not try to mitigate those activities that will diminish our ability to live here, but the attitude of most environmentalists today is “humans must go”. Fine start with all the environmentalists and GW religious nuts first. The rest of us will stick around and look for more humane solutions.
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