The phrase “feed-in tariff” has recently entered the daily dialogue of not only renewable energy advocates, but policy makers as well. A feed-in tariffs is a policy mechanism that provides a renewable energy facility with a guarantee of interconnection to the electrical grid and a set price paid for that renewable energy. Feed-in tariffs are proven to be the most successful policy for the rapid development of significant amounts of renewable energy world-wide, and have experienced increasing attention in North America over the last year. Feed-in tariffs work because they are more equitable than other policies. They enable everyone - including homeowners, farmers, cooperatives, and businesses large and small - to profit from renewable energy.
Once a feed-in tariff is implemented, utilities are required to purchase the electricity produced from a qualified renewable energy facility at a set price, or tariff, per kilowatt-hour generated. The cost of purchasing this energy is paid for by the utility and energy consumer, just like any other electricity generation source, and not with government incentives paid for by taxpayers who may not be using the energy. To ensure the tariff rate is successful, it should be set at a level that allows recovery of the cost of the facility plus a return on the investment. This is similar to how regulations of utility rates happen in many parts of the country and is a familiar concept for the industry. A feed-in tariff is separate from net-metering because the electricity generated is not used on-site. All of the output from the facility is purchased by the utility and the facility owner continues to pull electricity from the grid as before.
This type of policy has had notable success in Europe, particularly in Germany where as of 2008, over 75 percent of the electricity generated from renewable sources was purchased according to the tariffs under the Renewable Energy Sources Act (EEG), Germany’s feed-in tariff. The additional costs associated with this program for 2008 accounted for an additional 1.05cent/kWh. An average German household had an increase of 3.10 euro in their monthly electricity bill as a result of the feed-in tariff. The German Ministry for the Environment, Natural Conservation and Nuclear Safety issues an annual report on the status of renewable energy in Germany that analyzes these figures. You can read the 2008 preliminary report here.
In North America this type of policy has been slow to gain support despite efforts on both the federal and state levels. However, the past year has witnessed major strides in implementing feed-in tariff policies. According to the Alliance for Renewable Energy, there are 20 states that have considered feed-in tariff style policies. Below are some highlights from a few of these efforts: California’s Start; The Gainesville Story; Vermont Joins In; The Canadian Perspective.
California’s Start
In early 2008 the California Public Utilities Commission announced the availability of two expansions of a tariff designed to support and encourage the development of up to 480MW of renewable energy from small generating facilities throughout the state. This program is targeted specifically to the publicly owned water and wastewater treatment facilities.
The key elements of the tariff are:
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A fixed price, non-negotiable contract for 10, 15, or 20 years
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A project size cap of 1.5MW
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According to the order establishing this tariff, an eligible facility is one that is defined in PUC code § 399.12 which requires the facility to meet the definition of § 25741 of that code. The definition includes wind facilities that are located within the state of California and generally requires the first point of interconnection to be within the state.
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Any customer may sell to Edison or PG&E
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Only water and waste water customers may sell to the other four utilities: San Diego Gas and Electric Company, PacifiCorp, Sierra Pacific Power Company, Bear Valley Electric Service Division of Golden State Water Company, and Mountain Utilities
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The tariff rate is determined by the following formula:
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Price paid in $/kWh = (kWh of energy distributed onto the grid at a certain time) * (the baseload market price reference fixed at time of actual commercial operation) * (the time of delivery adjustment)
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More information on these factors can be found in the order establishing the tariff from the CA PUC
Electricity purchased by the utility under this tariff may be used to satisfy the state renewable energy standards.