Wednesday, November 25, 2020

Solar Energy: the case for a Feed-In Tariff

 

 

Notwithstanding the current fervor for solar energy in the United States, not much can be accomplished in the next few years under existing law. There’s a very simple explanation. Currently the initial cost of solar energy facilities and equipment is too expensive. In the absence of some form of innovative financing, the projects cannot pay for themselves for decades. The problem is compounded because the United States has no single coherent energy policy at the federal, state or local levels. Almost every effort to develop solar energy projects in the United States is based on a crazy quilt of grants and tax incentives:

  • Government Grants (Federal and State)
  • Investment Tax Credits (Federal)
  • Accelerated Depreciation (Federal)
  • Rebates (State)
  • Renewable Energy Credits (State)
  • Net Metering (State and Local)

The Stimulus Package helps broaden the opportunity, but does not remedy the problem since the package continues the existing policy that does not implement the funding process.

The result? A system that is notable primarily for encouraging only those who have ample tax liabilities to take advantage of the tax incentives. The benefit of the solar system now depends primarily on the tax status of the owner and the difficulty is compounded from the fact that most of the value is an avoided cost and not a cash return. Those without substantial tax liability or access to hard-to-get grants have virtually no way to take advantage of the laws in order to install solar energy.

Why is Solar Energy growing so much faster abroad?

Faced with the same cost problems as the United States, renewable energy is booming abroad, first in Europe – beginning with Denmark, then Germany, France, Spain and, now, England. Ontario, Canada, has joined in. It’s all thanks to something called the “Feed-In Tariff” (FIT). Rather than relying on an array of tax incentives, nurtured by a few grants, the Europeans turned to FIT as dynamic financing, described as: “the world’s most successful policy mechanism for stimulating the rapid growth of renewable energy.” 19 European countries and 47 countries world-wide have adopted the FIT.

In Germany and Spain, solar-generated electric power has now grown to double digits. In Ontario, where there is not much sunshine compared to Florida, FIT’s have stimulated growth of solar energy projects. In England where it had been said that FIT would “Never” be used, the Queen gave her “royal assent” on November 26, 2008, to an energy bill incorporating a FIT system for small energy producers. Other European nations are following. In the United States, the Cities of Gainesville, Florida, (with a four megawatt limitation) and Los Angeles, California, did not wait for the federal or state governments to act, and recently adopted their own FIT’s. The State of Wisconsin is now considering adoption of a FIT. Regrettably, the State of Florida appears to be at a funding impasse with no consideration of a statewide FIT, and no meaningful energy policy.

A very significant ancillary benefit of the FIT is job creation, particularly at this time of economic uncertainty. In Germany alone 250,000 new jobs have been created by virtue of the spread of solar energy manufacturing, engineering and installation. That figure is multiplied throughout the world and can be an important factor in the United States.

What is the “Feed-In Tariff”?

Tariffs are the price paid per kilowatt-hour of electricity generated. This means the total amount generated is sold to the utility, not simply the excess above use. The basic premise of the FIT is to set a price for electricity from photovoltaic (solar) systems that make it cost effective to own and operate those systems with a long term guarantee of price levels. Since solar costs would be spread among all electricity users the cost impact on any single user is minimal, as exemplified abroad, and where adopted in the United States.

Gainesville owns its electric company, thereby making the process easier to initiate. The Gainesville Regional Utilities (GRU), on October 13, 2008, explained the Feed-In Tariff in one simple sentence:

“GRU will purchase the energy produced for $X per kilowatt hour.”

Using Germany as a model the FIT has three elements:

  • Provide a price to purchase the output for each form of renewable energy, set at a level to make it a good investment. In Germany, the original price was $0.55 per kilowatt-hour. That price will be reduced as the goal of percentage of solar generated electricity is met, and eventually phases out completely. The cost is spread among all users and result in a minimal increase in electric bills (perhaps $1-$3 per month until phase-out).
  • Guarantee the price for the energy produced over the life of the investment, and backing the price with the credit of the government.
  • Mandate priority access to the electric grid in order to allow the electricity to be sold.

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