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U.S. Feed-in Tariffs will Increase PV Demand

published: 2012-05-16 15:40

By D.A. Barber

Feed-in tariffs (FIT) have been the preferred policy in many regions of the world to help support investors to rapidly increase installation of renewable energy installations projects and markets. Under most FITs, homeowners, businesses, and private investor-owned projects are paid a set price above production cost, usually 4-6 percent, for the renewable electricity they produce that is fed into the grid over a set length of time. This version of a FIT was first put forth in Germany's 2000 RES Act.

Major European markets with FITs, such as Germany and Spain, have seen PV installation grow significantly since they implemented FITs, which in turn has resulted in an increase in demand for PV systems. Most recently, a national feed-in tariff for solar projects was instituted in China to promoted domestic solar installations.


Source: NREL

While FIT programs are far and few between in the United States, the city of Los Angeles launched a feed-in tariff on April 3, 2012, to support 150MW of new rooftop solar installations. The move by the second largest U.S. city is expected to draw attention to other successful regional FIT programs in the nation where most energy policy is usually initiated on a state rather than federal level.

U.S. FIT Policy

FITs have not been instituted nationally in the United States even though the U.S. Department of Energy's National Renewable Energy Laboratory (NREL) calls them the most effective policy for renewable energy growth. The 2010 NREL report, "A Policymaker's Guide to Feed-in Tariff Policy Design," defines a feed-in tariff program as a group of policies that "encourage, rapid, sustained, and widespread renewable energy development." According to NREL, FITs were directly responsible for 75 percent of all PV and 45 percent of all wind development worldwide. FITs resulted in installation of 15,000MW of PV and 55,000MW of wind power between 2000 and 2009 in the European Union, compared to the U.S. with 25,000MW of wind and 1,250MW of PV where there is no national FIT policy. In fact, the largest of the full-scale, European-style FIT in all of North America  is actually in Ontario, Canada. Ontario's FIT is unique in that it includes a requirement that the PV equipment must be locally-produced, which has led to a number of international solar firms moving factories specifically to that Canadian province.

Instead of FITs, 31 of the 50 U.S. states have passed individual “renewable portfolio standard” (RPS) policies that mandate local utilities to purchase or generate a certain percentage of their electricity from renewable energy sources.


Source: Interstate Renewable Energy Council

The few feed-in tariffs that have been enacted recently in regions of the United States differ widely from each other as well as from the successful European FIT model. Nevertheless, those few states currently with FITs have been somewhat successful in developing renewable energy and attracting PV installation investors. But getting there has been a long struggle since there has been avid opposition from electric utility companies in many states to enacting FITs.

The first form of what could be called a U.S. “feed-in tariff” was implemented under the 1978 National Energy Act (NEA), which was enacted to encourage energy conservation and the development of renewable energy. One part of NEA is the Public Utility Regulatory Policies Act (PURPA) which includes a provision that requires utilities to purchase electricity generated from independent power producers at rates not to exceed their “avoided cost,” basically the cost that a utility would sustain to provide that same amount of electrical power. While PURPA has been interpreted in different ways, certain states such as California began offering “Standard Offer Contracts” to renewable power producers which sparked the wind energy industry in that state. But by the 1990s, opposition to PURPA by many large utilities - many operating in monopoly environments - stemmed from its encouragement of non-utility power generation.

Basically, PURPA has always been interpreted as increasing competition in the U.S. electricity industry and the new concept of feed-in tariffs is part of that interpretation. But in October 2010, the U.S. Federal Energy Regulatory Commission (FERC) declared that individual states have the authority to implement feed-in tariffs through PURPA. California’s three largest investor-owned electric utilities: Pacific Gas and Electric Company; San Diego Gas and Electric Company; and Southern California Edison filed a request for a new hearing or annulment to this order on November 22, 2010. But on January 20, 2011, FERC issued a ruling that clarified the authority of U.S. states to implement multi-tiered feed-in tariffs based on avoided cost and denied the utility challenge for a re-hearing.

Los AngelesFIT Program Launched

Currently, most of L.A.’s renewable power is generated outside the city and brought to the area via the grid. But the Los Angeles City Council cleared the way for the launch of a rooftop solar-energy FIT program on April 3, 2012, making LA the largest city in the nation to adopt such a program. The new law allows the L. A. Department of Water and Power (DWP) to initiate the “CLEAN LA Solar” program, which gives local property owners the right to sell solar power generated from L.A.’s vast, underused rooftop and parking lot space back to the utility. It is also designed to help the city and state meet set renewable power requirements.

CLEAN LA Solar was set in motion in 2008, when Mayor Antonio Villaraigosa called for a FiT program to be created in Los Angeles. The Los Angeles Business Council (LABC) had also been advocating the program since 2009, releasing a report that indicated the CLEAN LA Solar program with a 150MW FIT would create 4,500 jobs, generate economic activity amounting to $500 million and offset 2.25 million tons of carbon dioxide by 2016.

DWP now estimates that the FIT may average about 18 cents per kilowatt-hour. The first 75MW of the program is expected to come on line in 2012, with the second 75MW phase expected to be in place by 2016. The 150MW of solar electricity generated is estimated to be enough to power 34,000 L.A. homes.

State and City FIT Programs

The new Los Angeles FIT policy comes on the heels of a regional trend that started in Gainesville, Florida, which initiated the nation’s first FIT in 2009. Since that launch that city has seen a 3,400 percent increase in solar power capacity with about 11.5MW of installed PV capacity – the largest per capita rate of solar. 

More recently, LA and some other regional feed-in tariffs have adopted a new name for feed-in tariffs, preferring to call them CLEAN (Clean Local Energy Accessible Now) contracts. When the Palo Alto City Council (in California’s “Silicon Valley”) approved a feed-in tariff plan in March 2012 to buy power from customers who install solar panels on their roofs, they dubbed it with the CLEAN acronym. Under the program, the City of Palo Alto Utilities will pay 14 cents per kilowatt-hour under 20-year contracts. While the pilot project is only open to large commercial PV projects, Palo Alto plans to expand it to homeowners.


Early U.S. Feed-in Tariff Policy Design. Source: NREL

Since the 2009 Gainesville program, a small number of other local and state FIT or CLEAN programs have been rolled out. Vermont adopted a feed-in tariff policy based on the cost of generation in 2009 and Maine adopted a cost-based FIT the same year, which also includes a cap on the total payment level. In 2010, the Sacramento Municipal Utility District and San Antonio’s City Public Service utility implemented their own FITs specifically to encourage PV use. Also in 2010, Hawaii began offering a feed-in tariff program that pays 21.8 cents/kWh for excess power produced in home PV systems and fed into the grid. The state implemented the FIT as part of Hawaii's goal of generating 70 percent of its electricity from renewable energy by 2030.

The state of Rhode Island passed a limited feed-in tariff system that was signed into law on June 29, 2011. That statute sets an annual target of the 15-year “Distributed Generation Standard Offer Contracts” for wind, PV and biogas of 5MW in 2011, 20MW in 2012, 30MW in 2013 and 40MW in 2014.

Other regional metro utilities, including the Long Island Power Authority and Fort Collins, Colorado, utility have also announced plans to launch FIT programs in 2012. 


Feed-in tariffs have been associated with a large growth in solar power and while some European countries are pulling back on FIT programs, others have expanded. Most recently, a national feed-in tariff for solar projects was issued in China at about us$0.15 per kWh.

While there is not likely to be a national FIT policy in the United States any time soon, a handful of U.S. states and metropolitan areas have passed FIT policies – some modeled after Germany’s 2004 Renewable Energy Sources Act and Ontario’s 2006 Standard Offer Contract. FIT advocates continue to pursue action at the state and local level, resulting in renewable energy policies varying widely within the United States as they do in the European Union. This was true with RPS policies, which have only been passed at the state level since political efforts to pass a national RPS in energy legislation have consistently failed. For the U.S. deep in an election year and cut-backs in solar programs, the sparse FIT programs emerging are keeping the solar industry afloat in some regions.

The recent move towards FITs in Los Angeles and Palo Alto is expected to set the stage for other large cities to do the same. Indeed, Long Island, New York, and Fort Collins, Colorado, have already indicated their plans to go this route this year.

While government incentives encouraging solar investments continue to drive the global solar market, these programs are drying up in the U.S. which could explain the sudden burst of FIT activity through utility companies with the inspiration that it will help spur development and PV installations. This is also driven by states which have deadlines for utilities to meet a mandated RPS because buying power from homeowners and businesses with PVs help them meet those goals. This move towards FITs is a dramatic policy trend shift for many and some utilities are still fighting the concept. Since feed-in tariffs and RPS targets are complimentary, the states to watch - and utility companies operating within their cities - are those which are fast approaching their RPS deadlines. It is those areas which have the potential for the next FIT programs to become active. And since most recent feed-in tariff proposals have specifically targeted PVs, it is those same cities and states that have the greatest rooftop PV marketing potential for module companies.

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