Scientists & Engineers for America

Feed-In Tariffs

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[edit] Summary

Efforts to increase the use of renewable energy in the United States have usually pursued the renewable energy portfolio standard (RPS) approach, but European countries have achieved great success with feed-in tariffs (FIT). Feed-in tariffs require utilities to purchase a certain amount of renewable energy at fixed rates. As with RPS, this creates a profitable market for renewable energy, normally too expensive to compete with electricity generated from fossil fuels. [1] The distinction between RPS and FIT is the idea of a fixed-price for energy over an established period of time, which allows renewable energy producers to predict profits in the medium- to long-term and avoid some of the perilous fluctuations in energy markets that can easily cripple new producers under an RPS system. Stable profits also encourage investors and make it easier for green entrepreneurs to secure capital.[2]

[edit] History

[edit] Beginnings in California

Despite their widespread adoption in Europe, feed-in tariffs were first adopted in the United States. Under the federal Public Utilities Regulatory Policies Act (PURPA) of 1978, California introduced the first feed-in tariff, "Standard Offer No. 4," in 1984. Standard Offer No. 4 offered a fixed price for renewable energy for a 10 year period and resulted in the installation of 1200 MW of wind power. With a decline in oil prices, California stopped the program, a common fate for many renewable energy programs begun in the United States during the oil shocks of the 1970s and '80s.[3]

[edit] Germany

Germany, now the poster child for feed-in tariffs, passed its Stromeinspeisungsgesetz (StrEG) in 1991. Stromeinspeisungsgesetz translates to "the law on feeding in electricity to the grid," from which feed-in tariffs derive their name. Germany began by fixing tariffs to the retail rate of electricity, rather than the wholesale rate, which resulted in a higher rate paid to generators of renewable energy, justified by the hidden environmental costs of fossil fuel electricity generation. However, this method also resulted in fluctuating rates (and profits), making it difficult to attract investment and financing for renewable generation projects.[4]

In 2000, Germany replaced StrEG with the Erneuerbare Energien Gesetz (EEG), which created a system of 20-year fixed rates based on the cost of generation plus a reasonable profit margin for each renewable technology.[5] The 20-year fixed rate for renewable energy generation declines gradually, such that generators built earlier receive a higher payment stream than those built later. This is designed to encourage innovation and cost reductions over time and accounts for expected economies of scale.[6]

Germany's commitment to FIT has paid off - in 2008, 14.2% of its electricity came from renewable sources. The upswing in green energy has also generated jobs and propelled Germany to the lead in an industry that promises to be more and more important in coming years.[7] Working largely off of the German example, 18 EU countries have since adopted feed-in tariff systems.[8]

[edit] Feed-In Tariffs in the USA

[edit] California

California was the earliest adopter of FIT in the United States in the 1980s, but that program quickly ended in the face of low oil prices. In July 2007, California passed Assembly Bill 1969, which created a FIT policy capped at 478.4 MW. Tariff rates were based on the "market price referent" (MPR) that is used in the state's RPS, and as such reflected the avoided cost of generating electricity (the cost to a utility for producing the equivalent amount of electricity by other methods). This results in a much lower rate paid for renewable energy than in tariff systems linked to the cost of generating renewable energy (as in Germany) and as a result, California's current FIT system has not stimulated much additional renewable energy development. The relative failure of the avoided cost approach and the restricted scale of the program has prompted vigorous discussion of implementing a German-style FIT policy in the state, and it seems likely that California will revise its current system in the near future.[9]

[edit] National

The American Clean Energy and Security (ACES) Act of 2009, H.R. 2454 (summary), as passed by the House on July 24th, 2009, contains within it an amendment submitted by Representative Castor and Representative Inslee that allows the states to implement feed-in tariffs as a tool to help achieve the target of 20% use of renewable energy in electricity generation by 2020. Read more about the climate change legislation.

[edit] Endnotes

  1. ↑ Mendonca, Miguel. "Energy, Ethics and Feed-in Tariffs." http://www.renewableenergyworld.com/rea/news/article/2007/04/energy-ethics-and-feed-in-tariffs-48310
  2. ↑ "Going Green: Why Germany Has the Inside Track to Lead a New Industrial Revolution." Knowledge@Wharton. 07 April 2009. http://knowledge.wharton.upenn.edu/article.cfm?articleid=2201
  3. ↑ Gipe, Paul. "Evolution of Feed-in Tariffs." 18 March 2009. http://www.wind-works.org/FeedLaws/EvolutionofFeed-inTariffs.html
  4. ↑ Gipe, Paul. "Evolution of Feed-in Tariffs." 18 March 2009. http://www.wind-works.org/FeedLaws/EvolutionofFeed-inTariffs.html
  5. ↑ Gipe, Paul. "Evolution of Feed-in Tariffs." 18 March 2009. http://www.wind-works.org/FeedLaws/EvolutionofFeed-inTariffs.html
  6. ↑ Rickerson, Wilson and Robert C. Grace. "The Debate over Fixed Price Incentives for Renewable Electricity in Europe and the United States: Fallout and Future Directions." The Heinrich Boll Foundation. Feb. 2007. http://www.boell.org/docs/Rickerson_Grace_FINAL.pdf
  7. ↑ "Going Green: Why Germany Has the Inside Track to Lead a New Industrial Revolution." Knowledge@Wharton. 07 April 2009. http://knowledge.wharton.upenn.edu/article.cfm?articleid=2201
  8. ↑ Rickerson, Wilson and Robert C. Grace. "The Debate over Fixed Price Incentives for Renewable Electricity in Europe and the United States: Fallout and Future Directions." The Heinrich Boll Foundation. Feb. 2007. http://www.boell.org/docs/Rickerson_Grace_FINAL.pdf
  9. ↑ Couture, Toby and Karlynn Cory. "State Clean Energy Policies Analysis (SCEPA) Project: An Analysis of Renewable Energy Feed-in Tariffs in the United States." National Renewable Energy Laboratory. June 2009. http://www.nrel.gov/docs/fy09osti/45551.pdf
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