Monday, October 26, 2009

11 questions on FITs from Arizona

1) How is the public interest served, protected or advanced by a Feed-in Tariff (FIT)?

First, a properly designed FIT ramps up renewables. You then get clean electricity, which not only keeps the environment clean, but also diversifies at your power supply, increasing energy security.

Second, FITs provide a way of unleashing the investment power of citizens. Whereas RPSs have led to a boom in wind, and contracts are being signed for gigantic solar farms with hundreds of megawatts, this capacity is left up to utilities. Citizens can hardly get involved in these giant projects. FITs provide a reasonable (generally 5-7 percent) return on all investments that society deems worthy, so homeowners and communities get roughly the same profit margin as large utilities.

Essentially, utility regulators in the US have been doing the same with utilities for decades; they work out utility rates with power providers to ensure that companies get a reasonable profit even as they prevent price gouging. FITs provide the same kind of safe investment environment to citizens, who do not have any such thing up to now.

2) Would implementing a FIT harm the public in any way?

The cost of FITs is generally passed on directly to our consumers as a surcharge on the retail electricity rate. Currently, the extra charge is estimated at 3% (see this chart in German showing a breakdown of the German retail rate) of the retail rate in Germany, currently by far the world leader in solar and wind power in per capita terms. Roughly, this breaks down to the price of a cup of coffee or a loaf of bread per month for the average family each month. So for a few dollars a month, you could be the world leader in solar and wind.

Nonetheless, policies that support renewables in the US often stipulate that the impact on the retail rates must be negligible, so a three percent increase must be politically palatable (it is no problem at all in Germany). Americans I speak with are generally concerned about the impact on the poor, but of course the purpose of energy policy is not to redistribute wealth. Protecting the poor is the realm of social policy, not energy policy. But the debate in the US and Germany is quite different, with the many Germans actually welcoming higher energy prices as a way of discouraging that wasteful consumption and encouraging conservation and efficiency.

What are the various models of FITs, and what are the main distinguishing features?

See the World Future Council's website.

4) How much would a FIT cost consumers, and how would those costs be allocated?

See #2, but also keep in mind the following chart, which is a projection for future costs in Germany:

This chart basically shows that the cost of German FITs is not expected to continue to increase. Indeed, it will peak in all likelihood within the next 5-10 years at a level only slightly above the current level, and then begin to decline.

5) What other states have FITs?

Vermont -- but also see Ontario, Canada. And beware of FITINOs: feed-in tariffs in name only. Most onlookers consider California's so-called "FITs" to be FITINOs.

Would you recommend a cap on each project, and/or a cumulative cap?

Sure, you could put a limit on how far you want to go, such as 2 GW per year or something like that. Alternatively, you could say that the tariff will either decrease by a certain percentage at the end of the year or whenever a particular ceiling is reached (1 GW or 1 year, whichever comes first).

How much solar PV is installed, both in absolute numbers and as a percentage of the whole: (a) in the world, (b) in the U.S., and (c) in the top 10 states in the U.S.?

Let me answer this question with a comparison: at the end of 2008, the German state of Baden-W├╝rttemberg had 25 percent more photovoltaics installed than the entire United States. Baden-W├╝rttemberg is roughly the size -- and has roughly the solar conditions -- of Connecticut (image from Wikipedia).

8) How would you compare a FIT with a Renewable Portfolio Standard (RPS)?

RPSs are targets; FITs, mechanisms. Considered more market-based by many in the US, RPSs are also ironic in that they use penalties and require governmental oversight; FITs require no such regulation or oversight, and there are no penalties. RPSs are also closely related to cap and trade policies, which is also ironic because cap and trade is designed to reduce something (greenhouse gas emissions), whereas RPSs are trying to increase something (renewable energy).

RPSs have also not proven to be very successful anywhere and are not being copied by foreign countries, whereas FITs have completely taken over Europe and are now expanding to cover the globe.

But in the US, you could keep your RPSs as your target and simply use FITs to reach them. NREL said as much in a recent report.

9) Can a FIT and an RPS exist together?

See above

10) If a FIT was approved by the Commission, what do you think the outcome would be?

If properly designed, you would become a solar powerhouse, provide your citizenry with a safe place to put tens of thousands of dollars per person, and you could probably be 100 percent renewable fairly quickly. Keep in mind that the conditions in Arizona are especially good for solar, most of which is generated in the afternoon, which is probably when your power consumption peaks. Do you have enough water left to put up new coal or nuclear plants to cover that peak demand?

Would a FIT provide a benefit to rural areas, urban areas, or both? Why or why not?

Both. Mainly, if you stipulate -- as Germany did -- that renewable power has priority over conventional power, then homeowners in cities will begin using their roofs to generate electricity, and farming communities will begin using it not only their roofs, but also their land to grow energy crops, set up wind turbines (the land around the turbines can still be used for farming), and possibly for solar arrays on areas that are not arable.

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