FEED-IN TARIFFS – GOOD F-I-T FOR THE U.S.?

One of the most often repeated and most unjust criticisms of New Energy is that it is only successful if subsidized by the taxpayer.

Why this unjust assertion is so often repeated: The influence of those who New Energy threatens (Old Energy) is far reaching.

Why this assertion is unjust: It fails to recognize that the U.S. government (and governments around the world) always use policy and tax benefits to support the energies they deem most valuable for their national security and economic development.

Britain supported its coal industry, the U.S. supported and continues to support its oil and gas industry and France supports its nuclear industry. Saudi Arabia, Venezuela and Russia have virtually taken over their oil industries.

If the New Energy industries are to have any opportunity to develop in an Old Energy world, there are only 2 choices: Either support for Old Energy must be removed and the true cost of using them imposed, or (2) New Energy must have matching subsidies.

The most developed New Energies are already at or near price parity. On a leveled playing field, they will surely thrive in the marketplace.

Lois Barber, co-founder/executive director, EarthAction and energy advisor, World Future Council: “Creating incentives for the rapid and widespread production of renewable energy is key to accelerating our shift from fossil fuels to renewable energy.”

The burden of smartly designed incentives is not great. Barber: “…increased costs to the utilities are paid for by adjustments to all their customers’ electricity bills. In Germany, this has meant an increase of about $3 a month for average homeowners — about the cost of a loaf of bread.”

And the benefits of smartly designed incentives are many but come down to one concept: They make New Energy production more widely affordable and therefore more widely available. 1/3 of Germany’s solar energy is produced by farmers with solar systems on their barn roofs. When New Energy producers are everywhere in the economic system, the costs are offset by growth in market activity. (Ex: The farmers making money on solar buy more stock, more feed, grow more crops, etc.)

Of all the incentives thoroughly developed, consensus is developing that investors prefer the feed-in tariff (FiT) because it creates long-term certainty. Goldman Sachs, 1 of the 2 remaining powerful investment banks, listed the FiT #1 in “How to power alternative energy.” What is there not to like about 15-to-20-year contracts with set prices?

Rep. Jay Inslee (D-Wash.), co-sponsor, federal FiT legislation: “With market certainty, innovators and inventors will turn out to compete in the market for renewable electricity…”

Below is a summary of New Energy activist and leader Lois Barber's excellent introduction to the FiT concept.

The article's only shortcoming: It fails to grapple with the most difficult aspects of the FiT. It does not explain the problems with establishing precisely the appropriate per kilowatt-hour (kWh) rate, the questions about the right length of the contract or the complexities of the degression rate by which the subsidy is wound down. Example: Too high a per kW-h rate inflates the value of New Energy and creates unsustainable growth and a bubble in the country’s industry; too low a rate fails to incentivize uptake and produce the economies-of-scale to drive New Energy costs down.

The issue with subsidies is not that energies are dependent on them. That is a given. The issue is choosing the right energies to subsidize and getting the subsidies right.

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Feed-In Tariffs; A Regulatory Tool
Lois Barber, May/June 2008 (EnergyBiz Magazine)

WHO
Lois Barber, co-founder/executive director, EarthAction and energy advisor, World Future Council; Dr. Hermann Scheer, member, German Parliament/leader, Germany’s adoption of FiT; Michigan state Rep. Kathleen Law; Rep. Jay Inslee (D-Wash.) and Rep. Bill Delahunt (D-Mass.)

WHAT
The feed-in tariff (FiT) has proven to be the world’s most effective New Energy policy.

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WHEN
- 1991: Germany introduced its FiT.
- 2004 – 2006: New energy jobs in Germany up 40%.
- 2007: Germany produced 12.5% of its electricity from New Energy, 3 years ahead of goal.

WHERE
- There are FiTs in 40+ countries, states, and provinces around the world.
- Germany: 1.3 million solar panels in place, producing 14% of its electricity from New Energy, cut CO2 emissions 18.5% from 1990 levels, on track to meet 40% cuts by 2020 goal.
- Denmark and Spain, after instituting FiTs, became world leaders in New Energy production.
- 53% of world wind production capacity is in Denmark, Spain and Germany.
- Ontario is the only place in North America with an FiT but California, Illinois, Rhode Island and Minnesota have pending legislation and it is under discussion nationally.

WHY
- FiTs at work in other countries differ in details, but have similar principles: (1)They require utilities to provide grid and (2) to buy all the New Energy generated at agreed per kWh prices a set extended period (usually 15-20 years).
- FiT prices vary according to technology, system size and location.
- A board reviews policy and adjusts rates.
- A Michigan proposal from Reprentative Lewis: includes all New Energy sources (hydro, wind, solar, geothermal, biomass and biogas), sets 20-year contracts w/“reasonable returns” on investment (solar rates: 50 cents to 71 cents per kilowatt
hour depending on technology and system size; wind rates: 2.5 to 10.5 cents per kilowatt hour), guarantees grid connection within two months, requires price increases to be shared by utility rate payers.
- Federal proposal by Rep. Jay Inslee (D-Wash.) and Rep. Bill Delahunt (D-Mass.): Gives incentives to New Energy producers, guarantees grid connection, sets rates.
- In various markets, FiTs’ long-term stability and profit incentives have proven more attractive to New Energy producers than other legislation, especially short-term policies.
- FiTs encourage entrepreneurs, expand the New Energy market, create jobs and stimulate the economy.

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QUOTES
- Barber: “All across the country, whether motivated by a concern for the environment,
energy security, job creation, the economy — or just a desire to make a buck — Americans are looking outside our borders to see what’s been fueling the global growth in renewable energy. They are finding that one type of legislation, in Europe and elsewhere called a feed-in tariff (FIT), has proven to be the world’s most effective renewable energy policy.”
- Dr. Hermann Scheer, member, German Parliament/leader, Germany’s adoption of FiT: “New players have stepped into the market who now no longer have to ask the established energy providers for permission to access the grid. Only in this way can a breakthrough for renewable energy take place…”
- Rep. Bill Delahunt (D-Mass.), co-sponsor, pending federal FiT legislation: “As the former chairman of the Congressional Study Group on Germany, it is clear to me that the single most important step we can take in order to promote a rapid growth of renewable energy in the United States is to adopt our own version of the German feed-in-tariff. In my travels to Germany I have been amazed at how this very simple policy has created an explosion of grassroots interest in the use of solar and wind energy. It is time to bring this renewable energy revolution to the United States.”