ORIGINAL REPORTING: Solar Incentives Evolving
RIP FITs: As US feed-in tariffs fade, adopting elements could spur solar growth; FITs worked well until renewable energy prices fell, but aspects of the incentive scheme could still drive growth in the C&I sector
Herman K. Trabish, July 18, 2016 (Utility Dive)
Editor’s note: The newest high-level policy debates are beginning to suggest a hybrid version of net metering and feed-in tariffs may be more workable as a solar incentive than a technology-based market valuation mechanism until technology catches up with power market complexities.
Just before the dawn of the twenty-first century, distributed renewables faced a dilemma: Economies of scale were needed to grow them, but they were largely too expensive to gain that momentum without economic assistance. Two general solutions emerged. One was the feed-in tariff (FIT), which provides a per-kWh, above-market fixed price, or tariff, for the output of distributed generation (DG) through a long term contract. That allowed DG buyers to pay off their investments and earn a “reasonable” profit. Typically, the tariff is stepped down as economies of scale develop. The other was net energy metering (NEM), which credits DG owners at the retail price of electricity over a similarly extended fixed term. In most cases, the retail rate credit is unchanged unless policymakers revise the policy.
The FIT was taken up across Europe and burned bright early – but has since faded. NEM rose to prominence in the U.S. – but is now being transformed by policy changes in solar-heavy states. Elements of both incentive schemes could help policymakers settle on a more sustainable, long-term solar support, sector insiders told Utility Dive. Advanced market-monitoring technologies are expected to allow NEM compensation to be set at real-time electricity market value and a more nuanced way of valuing customer-sited generation will make elements of the FIT concept part of that valuation. A re-evaluation of FIT policies in Europe began when skyrocketing demand for the above-market tariffs imposed costs across utilities’ rate bases. Austerity measures imposed by conservative governments due to weakening economies after the 2008 financial crisis added to the pressure. While FIT programs have proved unstable and short-lived in the U.S., an alternative FIT is emerging… click here for more
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