NREL Supports Feed-in Tariffs Best Practices
NREL Supports Feed-in Tariffs Best Practices
By Dan Martin, Executive Vice President, PV Group
A new report from the National Renewable Energy Laboratory (NREL) provides further momentum to the idea that feed-in tariff policies are the most effective way to encourage PV adoption in the US. The report, A Policymaker’s Guide to Feed-in Tariff Policy Design concludes, “The success of FIT policies has been attributed to the stability and certainty they offer for renewable energy investment…these policies create an environment that is conducive to leveraging capital toward RE deployment, which provides an effective framework for the wider adoption of RE technologies.”
The NREL report is the most comprehensive analysis by a US government agency on feed-in tariff policy. It provides American policy makers a guide to policy best practices, as well as analysis on what are the advantages and disadvantages of each design element. In December of 2009, SEMI PV Group released a White Paper entitled, Advancing a Sustainable Solar Future: Policy Principles and Recommended Best Practices for Solar Feed-in Tariffs , that outlined our public policy principles in support of PV power adoption and recommended key best practices for feed-in tariff policy design and implementation.
After reviewing data from around the world, the NREL report provides a summary of desirable policy features and recommendations, including:
- Long-term policy stability
- Payments based on the costs of solar generation
- Differentiating the tariff prices to account for different technologies
- Fair, open and guaranteed grid access
- Use of tariff regression to encourage cost reduction and innovation
All of these policy Best Practices are consistent with the SEMI PV Group White Paper. In the press release announcing our White Paper, we said, “Best practices…include support for technology differentiation, generation cost-based rates, fair purchase and interconnection requirements, use of fixed-price and long-term payments, and the use of predictable incentive declines.”
The importance of the NREL study is that it further reinforces FIT as the preferred policy mechanism to support solar adoption, but is also adds important guidelines and policy options specifically for the US market. Among these policy features that are especially applicable for the US market are support for time-of-delivery payment structure and the transparency and uniformity in interconnection rules. Time-of-delivery payments are important for solar and can help create a more efficient electricity system, while providing a means to encourage peak shaving. Under the decentralized US system of power generation and electricity distribution, effective FIT policies need to ensure uniform and nondiscriminatory standards for grid interconnection. The report notes the greater the clarity at the outset, the lower the administrative costs. The report emphasizes that “interconnection standards be as uniform as possible to foster higher efficiencies and minimize duplication.”
The NREL report also addresses many of the myths surrounding feed-in tariffs, such as that FIT policies discourage competition. The NREL report says the drive for market share under feed-in tariff polices in Germany, France, and Spain has driven increased private sector research and development, spurring innovation and technological cost reductions. NREL also dispels misunderstandings surrounding Spain’s implementation of feed-in tariffs.
"The Spanish case demonstrates that aggressive tariffs combined with a good resource and inadequate oversight can create an explosive policy combination. Care should be given to the design of FIT policy caps (or other cost containment mechanisms), particularly for costlier resources. On the positive side, Spain's experience demonstrates that FIT policies can yield significant RE deployment quickly and effectively and can, therefore, be useful to meet aggressive RE targets."
The report also examined alternative funding mechanisms for FITs, such as carbon auction revenues instead of integrating the cost of a FIT into the rate base. The report said this approach “could cap the quantity of RE development that can occur [with] considerable uncertainty concerning the amount of funding available, which would likely have a negative impact on investor security because carbon prices fluctuate”. Another objection to carbon auctions noted by the report is that the cost burden is not equally shared as it is with a ratepayer-funded policy.
In the US, feed-in tariffs have been slow to make an impact. According to FIT expert, Paul Gipe, Italy installed more solar photovoltaics (PV) in 2009 and the first quarter of 2010 than the entire U.S. primarily due to an effective FIT policy. Italy introduced a system of feed-in tariffs for solar PV in February, 2007 after concluding that the previous program of Tradable Green Certificates was not delivering the results desired.
In California, which is comparable in size to Italy, the PV Group supported CALSEIA and Senator Negrete-McLeod (D-Chino) in urging the California Public Utilities Commission to implement SB 32, a feed-in tariff bill enacted in 2009, with “PV Adder” pricing which would result in an additional 750 megawatts of new renewable generation in California. Last year, SB 32 was passed utilizing a Market Price Referent (MPR) reflecting a levelized long-term cost threshold for baseload electricity generated by a new natural gas plant. With natural gas prices reaching 10 year lows, and without any consideration for other rate payer benefits of solar power adoption, California’s FIT has failed to create a meaningful incentive for solar power in the State.
Sierra Club California, probably the most influential renewable energy organization with voters, called for increasing the role of solar PV in the state more than 30 times that of today through a system of feed-in tariffs. The environmental group's recommendation that the state develop 30 billion kilowatt-hours (30 TWh) of distributed generation, mostly with solar PV, is contained in a formal filing with California's Air Resources Board on how the state can meet 33% of its electricity supply in 2020 with renewable energy as required in AB32.
A recent study by the University of California Berkeley’s Energy and Resources Group (http://rael.berkeley.edu/node/626) concluded "that enacting a robust FIT in California to achieve the state’s 33% Renewables Portfolio Standard (RPS) would create 3 times the number of jobs, over 2 billion in additional tax revenue, and stimulate tens of billions in new investment. Furthermore, the adoption of a comprehensive FIT will cost-effectively fulfill California’s 33%-by-2020 goal on schedule."
Despite strong policy research and experience advocating FITs, and the support of broad-based environmental organizations like Sierra Club, the solar industry is not uniformly backing feed-in tariffs in California or other states. The reasons for this are complicated, based on a variety of policy, legislative, legal, and marketing perspectives. It is my sincere hope that the PV Group can join and help forge broad coalitions that accelerate solar power usage in all areas of the world, for the benefit of our members and the industry. In most areas of the world for the next few years, that will be through FITs. In the United States, it remains to be seen what public policy options are possible to meaningfully accelerate PV power adoption in the next 12-24 months.
SEMI PV Group - The Grid, August 2010