SPANISH ADJUST INCENTIVES TO NEW REALITY

The hottest topic in the solar energy world is the “feed-in tariff” (FiT). The U.S. solar energy world is debating whether there should be a FiT. Germany and Spain, among the leading solar energy producing countries in the world, have built thriving solar energy industries on FiTs and are more concerned with determining what the best FiT should be.

Net metering, a common allowance in many U.S. states, grants individual installers of energy systems the privilege of selling the electricity their systems produce to their utilities at predetermined or prevailing rates until they zero out their power bills.

A feed-in tariff is a set per kilowatt-hour (kW-h) price paid for electricity system owners’ use and for the electricity they feed into the grid beyond their own consumption. It essentially makes system owners independent power producers. Typically, FiTs are paid at higher than retail “per kW-h” rates over extended periods, usually 20 years, to incentivize solar system installation.

Backstory: There was a time not so long ago when solar panels cost so much they weren’t used much except by hobbyists, geeks and off-grid outlaws. Everyone knew solar energy was the way of the future but there didn’t seem to be any way to get to the future.

If only there was demand in larger volumes, solar advocates mulled, production would soar and economies of scale would drive costs down.

A dynamic visionary named Hermann Scheer convinced the German government to provide incentives for solar energy in 1990, including a FiT, and the German solar industry began growing at 30% every year.

The Japanese created the world’s next incentive program in 1994 and it jettisoned them to temporary world leadership in solar energy use.

Germany increased its incentive programs in 2000 and soon became the new world leader.

Spain has more recently instituted its own FiT. The same impressive production increase followed.

In the U.S., individual states instituted Renewable Electricity Standards (RESs) requiring their utilities to obtain a defined portion of their electricity from New Energy sources by a date certain, some with “solar carve-outs” requiring a specific portion of that New Energy to be solar energy. California introduced a limited FiT in 2008. It has produced unlimited debate.

The dreamed of economies of scale became a reality. The solar energy industry boomed. Prices for solar energy-generated electricity fell and continue to fall toward parity with the price of electricity generated by traditional sources.

More recently, however, doubts have arisen about the FiT because of the very economies of scale the incentives’ creators had sought. With larger scale, the costs of the subsidies threaten to become burdensome.

An FiT rewards a solar system’s installer at the expense of either the utilities or the government. If the higher than retail per kW-h rate is paid by the utility to the solar system owner, the utility’s other ratepayers bear the burden. If the government pays, taxpayers share the burden. Eventually, this makes conservative elements on the ratepayer/taxpayer side restive.

In response to critics’ calls for a downward pressure on the subsidies to stimulate more immediate engagement, a degression rate (a gradual lowering) often is built into a FiT. Different countries are trying different FiT rate/degression rate combinations.

The goal is to positively affect the market, incentivizing growth at a sustainable level. If a FiT is high but degresses too quickly, it might create too much market activity too quickly. A FiT that is not high enough might fail to generate satisfactory market activity whether it is long-term or degresses quickly. A long-term, high FiT could move too much market share away from the solar industries in other countries.

Examples of specific, currently effective FiTs include those in Germany and Italy. The progress of FiTs in mature solar energy markets seems to be toward lower per kW-h rates and an increasing degression rate, as seen in the newer German rate structure.

Have flaws in the FiT caused market vicissitudes?

First Solar, the fastest growing thin-film solar materials company in the world, said July 30 it is pursuing opportunities in Italy and France but not pursuing the legendary market in Germany or the booming market in Spain. Why?

Pressure from non-solar energy producing German ratepayers over the high costs of electricity resulting from utility FiT subsidies has forced that nation to cut its FiT rates. The world-leading market there is expected to fall off.

Spain’s very high FiT, designed to stimulate market growth over 4 years, was over-subscribed in its first year. The resultant booming solar market is considered inflated. The government’s energy ministry has spent months debating a new FiT, leaving the industry and its marketplace in limbo. With the announcement of a new plan, foreign solar companies are rushing into Spain’s marketplace to take advantage of the short-term subsidy but are expected to leave behind market chaos when the FiT rate drops later this year. (See GE buys 32 pct of Spanish solar energy firm)

What is a perfect FiT? There is no certain answer. The goal is still to push economies of scale in the solar industry by achieving the highest level of sustainable market growth. On the other hand, as one country changes or scales back its FiT to make its market more sustainable, another often ups its FiT to stimulate action. The result: Action. Like other businesses, solar businesses go where the return on investment is easiest.

See also PACT: Policy Action on Climate Toolkit

And check out the film version of Hermann Scheer’s newest book, Energy Autonomy – The Code of Survival

(NewEnergyNews must thank solar energy insider Alexandra Kravetz for the expansive industry information she so generously offered in the preparation of this post. Though NewEnergyNews takes full responsibility for all editorial opinions and decisions, Ms. Kravetz' expertise was invaluable background.)

Click thru to PACT and design a FiT. (click to enlarge)

Spanish Energy Commission Votes to Shrink Solar Incentives
Ucilia Wang, July 30, 2008 (GreenTechMedia)

WHO
Spanish Administrative Council of the Commission de la Energia (CNE)

WHAT
Spain’s first FiT was designed to provide incentives for 4 years. It was used up in its first year. CNE has redesigned the FiT with new limits on total megawatts allowed, new electricity rates and a 1-year limit. It was submitted it to the Spanish parliament and prime minister for approval. The rush to capitalize on the present FiT could generate the installation of 1.2 gigawatts of new solar, a subsidy-induced market expansion that could disrupt the world solar industry.

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WHEN
- CNE set new FiT rules July 29.
- The new FiT limits the program to the first 300 megawatts of new installation in 2009.
- The previous FiT limited the program to a total of 400 megawatts between 2007 and 2010 but the entire 400 megawatts was built in 2007.
- The proposed CNE rule also sets new FiT electricity rates to take effect in September 2008.

WHERE
- The Spanish FiT led to a “rush” of solar energy development. Even solar companies from other European countries, from the U.S. and from Asia have profited from Spain’s taxpayer-subsidized boom.
- Because Spain is lowering its allowance, business is expected to migrate to Germany where the FiT is still predictable.

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WHY
- In the months since the FiT allowance of megawatts was used up, the Spanish solar energy industry has been in upheaval.
- The new FiT proposed by the CNE may over the long term sustain the nation’s solar industry but in the short term may bring profit-takers rushing back into the market to take advantage of one-year provisions.
- The new FiT limits new installations to 300 total megawatts, 250 of ground systems and 50 megawatts of rooftop systems. The level of ground systems allows stimulus to solar power plant development.
- New electricity rates: 29 to 31 euro cents/kilowatt-hour, depending on the location fo the system (from 45 euro cents/kilowatt-hour).

QUOTES
- Nick Allen, research analyst, Morgan Stanley: “Long-term, 300 megawatts for 2009 signals a rapid deceleration in the Spanish market…The likely target repository for 2009 module production is now clearly the uncapped market of Germany.”