Feed-In Tariff: Does the United States Need a National Policy?

published: 2011-05-05 10:19 | editor: | category: Analysis

Rising gas prices, oil spills, and nuclear disasters have a way of refocusing the world's attention and commitment to the need for clean, sustainable, and renewable energy (RE). For two decades, countries in Europe, Asia and other regions of the world have carried out national policies for renewable energy based on Feed-in tariffs (FIT) policies. In fact, over 40 countries have national FIT policies. However, the United States has yet to act upon a national FIT policy for the deployment of renewable energy.

FIT strategies  grow RE markets by providing green energy developers long-term contracts for the sale of electricity generated from RE sources --  mostly wind and solar. These long-term agreements, covering 20 years, underlies one the keys to the success of feed-in tariffs. Guaranteed revenue streams attract project investors and lower developers' financing costs.

Renewable Portfolio Standard

In the US, states have relied on Renewable Portfolio Standard (RPS) to develop local RE resources. Originally implemented in the mid 1990s, RPS mandates utility companies to offer customers renewable electricity in proportion to each customer's total energy consumption. RSP allows individual states the leeway to develop its RPS scheme, including targets and designs. Local jurisdictions determine the minimum percentage of consumer demand utilities must fulfill with RE. Thirty states and the District of Columbia have compulsory RPS guidelines.

Relying mainly on RPS and other local incentives, the US generated 7% of its energy consumption from RE, with the following breakdown: biomass (52%), hydroelectric (34%), wind (7%), geothermal (5%), and solar (1%), according to the US Department of Energy (2008).

Federal Programs

Currently, Uncle Sam offers two major programs at the federal level for commercial entities. Businesses become eligible for a corporate tax credit, up to 30 percent, on their investments in clean energy property for 2009, 2010 and 2011. Instead of a tax credit, companies can also choose to receive a cash grant from the US Treasury Department within 60 days following the activation of a solar energy system. In addition, firms can take advantage of “accelerated depreciation” schedule and “bonus” depreciation for 2011.

Residential homeowners also receive federal incentives, such as the Residential Energy Property Credit, which provides a 30 percent tax credit for the cost of energy efficient improvements made to the home in 2009 and 2010. In additional, the Residential Energy Efficient Property Credit --  in effect through 2016, offer a 30 percent tax credit for the installation of solar hot water heaters, solar installation equipment, and other alternative energy improvements.

FIT Data

Many experts and industry professionals think America has long passed the point of employing a national FIT policy and has actually loss ground. Information pouring in from countries with FIT guidelines tend to support this argument. The Department of Energy's National Renewable Energy Laboratory (NREL) reports FIT regulations account for 75% of worldwide PV and 45% of wind electricity.

Germany, the poster child for the benefits of implementing a comprehensive and aggressive national FIT policy, has experienced unprecedented RE growth over the past ten years. Not only did the country double its renewable electricity capacity between 2000 and 2007, but also Germany has become the world's largest market for photovoltaic systems and wind energy.

Other countries have also demonstrated that a well thought out FIT policy can quickly accelerate renewable energy capacity, and for China -- RE production facilities. In recent years, China has clearly moved ahead to become the preeminent green superpower in manufacturing - producing 50% of the world's wind turbine and solar panels. Although the US still attracts the most venture capital, when comes to overall investments, recent data show the country operates at a disadvantage.

A  Pew Environment Group report demonstrates investors’ preference for countries with national polices that support renewable energy projects and offer incentives for manufacture and investments. Investors give even more significance to a consistent long-term environment supported by policy. In 2008, the US ranked number one as the preferred destination for clean energy investments. It has since fallen to third with $34 billion. In 2010, China and Germany moved into the top positions with $54.4 billion $41.2 billion, respectively.

Adopting an American FIT Policy

The adoption of a national feed-in tariff in the US does not have to involve a full-scale feed-in tariff. Neither does a FIT preclude RPS, but works in tandem with RSP and other programs. Last year, Jay Inslee (D-WA) introduced a national FIT bill modeled after Germany's successful policy. In July 2010, H.R.5883 - Renewable Energy Jobs and Security Act- made its way to the House Ways and Means Committee. The bill has yet to resurface.
Until policy makers catch up to the desires of informed US people, it seems states, such as California, Wisconsin, and local municipalities like Gainesville, Florida, will need to continue taking the lead in enacting FIT strategies at the local level. When visiting Gainesville in February 2009, Murray Cameron, vice president of the European Photovoltaic Industry Association, stated Germany's road to success with feed-in tariffs began at the local level.


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