Despite relative success in boosting renewables in Europe, feed-in tariffs have received scant attention in United States, which until now has opted for a market-driven renewable portfolio standard (RPS) approach. But this may be about to change. By Emma Clarke
A recent report by the US National Renewable Energy Laboratory (NREL) suggested that FiTs could work in the US if tailored to federal requirements. Its assertions are being borne out by the states of California, Hawaii, Oregon and Vermont, all of which recently mandated FiT programs. Several more states have proposals under consideration.
So far however, CSP projects have yet to benefit. The current schemes cap the size of individual systems at 5MW in Hawaii and California, 25MW in Oregon (but only for PV), and just 2MW in Vermont.
Onlookers remain divided over whether the FiT schemes in these states hold promise for CSP industry, with some suggesting that market-based approaches will be just as effective in driving growth in utility-scale renewable projects.
Hobbled by federal law
One major barrier to FiTs in the US came from federal restrictions in the form of the Federal Power Act (FPA) and the Public Utilities Regulatory Policy Act (PURPA) that could prevent states from setting FiT rates that are higher than utilities’ “avoided cost”.
California’s FiT, introduced in 2008, is largely ineffective since it is based on the utility’s avoided cost and not on the cost of generation plus a reasonable profit, says Paul Gipe, renewable energy advocate and independent analyst.
In 2010, all renewable energy projects in California get less than 10 US cents per kilowatt hour for power they sell to the grid, compared to an average 43 cents (35 Euro cents) for solar projects in Germany. By mid 2009, the California tariff had resulted in just 17MW of renewable generation, says Gipe.
NREL commissioned an analysis, published in January, which revealed a number of routes states could take to implement feed-in tariffs without falling foul of federal law.
States that rely on PURPA can lawfully implement feed-in tariff policies if they are based on the utility’s avoided cost, and then topped up with payments, for example through subsidies or cash grants, Renewable Energy Credits (RECs), utility tax credits or production-based incentive payments.
Feed-in tariffs can also be lawful under the FPA if the Federal Energy Regulatory Commission (FERC) undertakes contract-by-contract approval to ensure the rate reflects a reasonable rate of return, or if FERC provides blanket approval for sellers that issue a "market-power" report to FERC every three years.
The trouble is that compliance to these options will be too cumbersome for widespread, small-scale adoption, says Gipe. These conditions could be removed, however, if FERC adjusts its precedents, for example by granting exemptions from PURPA or FPA for generators less than 20MW so they can sell at any price without seeking FERC approval.
A recent conversation between the American Council on Renewable Energy (ACORE) and FERC on setting up an Americanized version of the German FiT suggests that FERC is ready to listen, says Karlynn Cory, senior energy analyst at NREL. “The current administration seems to be supportive of clean energy, so the timing might be right for approaching FERC with these issues.”
Despite these encouragements, not all states are likely to jump at the chance to implement feed-in tariffs. It also unclear whether those with, or considering, FiTs will be willing to remove caps to also cover utility-scale projects.
FiTs vs. SRECs?
The decision to limit to small-scale renewables is partly because demand for FiTs comes from the environmental movement that generally prefers distributed generation as opposed to large central station plants, says Gipe.
But another barrier has been that utilities and solar companies haven’t been behind the push for FiTs, preferring instead to use free-market RPS policies, says Steve Turner, regulatory and transaction lawyer at Turner + Associates.
To meet their RPS quota, utilities issue a request for proposal and select projects that offer the most attractive package in terms of cost, operational expertise etc. Eight states have also introduced renewable energy credit (REC) trading under their RPS schemes that allow utilities to decide who can sell them renewable energy based on a bidding process.
But the two policies (feed-in tariffs and RPS policies) need not be mutually exclusive, as they are in Europe, says Cory at NREL. She says the debate that has raged in Europe over whether FiTs are more efficient than a free market-based mechanism does not apply in the United States, where FiTs can be seen as an additional mechanism to meet RPS targets.
In such cases, RECs and competitive bidding can support larger-scale projects and mature technologies, while FiTs with caps fill the gap for emerging technologies or small-scale, distributed generation that can’t afford to compete in the RPS bidding process.
Moreover, she adds, RPS policies are becoming increasingly similar to FiTs now that many seek to differentiate between different types of technology and favour long-term contracts.
“In the minds of US policy makers, this system takes the best of both worlds. It recognises that different technologies cost different amounts, but it still allows the market to set the price,” says Cory.
Not everyone is convinced. As Gipe points out, the trouble with SRECs and the tendered system is that states don’t always get the amount of capacity that is contracted. “You get all these well-dressed executives making all kinds of grand announcements, but they won’t get projects built,” he says.
Countries with uncapped feed-in tariffs, by contrast, have frequently met, or exceeded, their renewable energy targets. “The challenge [with FiTs] is controlling development,” he says.
FiTs may also be necessary for large-scale projects to secure financing, says Cory. “There just isn’t enough equity out there to finance all of the projects that are lined up. This means some sort of leverage will be needed and debt lenders like feed-in tariffs,” she says, since they guarantee long-term and reliable revenue streams.
Cory says it is “too early to tell” whether FiTs will ever apply to large-scale projects in the US. But given most believed FiTs would never happen in the first place, it seems anything could be possible.