State Clean Energy Policy Analysis: Renewable Energy Feed-in Tariffs

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Toby CoutureEnergy & Financial Markets Analyst

February 12, 2009

State Clean Energy Policy Analysis:Renewable Energy Feed-in Tariffs

National Renewable Energy Laboratory Innovation for Our Energy Future

Feed-In-Tariff Definition

Feed-in Tariff (FIT)*: A renewable energy policy that offers a guarantee of payment to renewable energy developers for the electricity they produce.

These payments can be comprised of:1: Electricity sales, or2: Electricity sales + RECs

* Also called fixed-price policies, minimum price policies, standard offer contracts, feed laws, feed-in laws, renewable energy payments, renewable energy dividends, and advanced renewable tariffs.


Fundamental FIT Payment Choice

Time

FIT

Purc

hase

Pric

e (c/

kWh)

FIT Price(c/kWh)

ElectricityPrice(c/kWh)

(2) Premium

FIT Payment

(above market price)

(1) Fixed Price FIT Payment

Time

FIT

Prem

ium

(c/k

Wh) FIT Premium

(c/kWh)

ElectricityPrice

Actual FIT Premium Amount (c/kWh)

Fixed Price FITs

most common


FIT Policy CharacteristicsFIT policies generally:- Guarantee grid interconnection for RE- Provide a purchase guarantee (“must-take”

provision)- Involve a separate supply-oriented meter

(i.e. not net metering)- Are differentiated by technology type, project size, location and resource quality- Are designed to ensure the profitability of RE investments by basing the per kWh payment on levelized RE project costs


Feed-in Tariff Misconceptions

- FITs are not a “foreign” policy- Utilities have been signing cost-recovery + profit

contracts for decades, only for conventional generation

- Modern FITs are different from PURPA

- FITs can be compatible with an RPS mandate- The real question is between FITs and competitive

solicitations (RFPs)- They are two alternative procurement mechanisms


FIT Policy: Application in the U.S.

One state with enacted FIT legislation based on avoided cost (CA)One state with utility-specific premium price FIT policy (VT)Three states with enacted utility-based FITs (OR, WA, WI)Six states (+ 2 municipal utilities) with proposed FIT legislation based on RE project costs

Source: Adapted from Gipe www.wind-works.org, NREL Feb 2009

Gainesville, FL (approved)

Los Angeles, CA

(proposed)

Palm Desert, CA

(proposed)Rhode Island (proposed)

Note: As of Feb 2009, no US states have implemented comprehensive FITs based on the cost of RE generation.Gainesville Regional Utilities, a municipal utility, has approved the first U.S. cost-based FIT for solar PV.

One state with enacted FIT legislation based on avoided cost (CA)One state with utility-specific premium price FIT policy (VT)Three states with enacted utility-based FITs (OR, WA, WI)Six states (+ 2 municipal utilities) with proposed FIT legislation based on RE project costs

Source: Adapted from Gipe www.wind-works.org, NREL Feb 2009

Gainesville, FL (approved)

Los Angeles, CA

(proposed)

Palm Desert, CA

(proposed)Rhode Island (proposed)

Note: As of Feb 2009, no US states have implemented comprehensive FITs based on the cost of RE generation.Gainesville Regional Utilities, a municipal utility, has approved the first U.S. cost-based FIT for solar PV.


Key differences b/w US & EU FITs

1: Most US FITs are tied to avoided cost (LMP, MPR, etc.) rather than based on levelized RE costs

2: US FITs impose a number of caps: - project size caps

- program size caps- total cost caps- caps based on green power participant base, etc.

3. FIT payments in the US are not differentiated by technology type, project size, or resource quality


EU Research Findings

- FITs are more effective at stimulating domestic job creation than other RE policies

- FITs are not costlier than competitive solicitations

- FITs are lower risk (and lower cost) than tradable REC markets

- FITs create more dynamic RE markets with more rapid RE growth


EU Research FindingsCountries with FITs:

1. have highest RE deployment effectiveness

2. have highest and most dramatic job creation growth, and the highest economic benefits tied to industry, manufacturing, and service sector development

3. have counter-intuitively delivered lower cost RE generation than countries employing “competitive” policies like the RPS & RO in the UK


FITs vs. Alternative Policies

Wind Power Deployment in the EU:

Source: EUROSTAT, 2008; NREL, 2008

0

10

20

30

40

50

60

70

80

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Countries with wind FIT Countries with alternative support

Elec

tric

ity

Gen

erat

ion

(TW

h)


RE Policy & Cost

Average per kWh Payment for Onshore Wind (2008)

0

5

10

15

20

25

Germany Spain UK* Italy*

Countries

Purc

hase

Pri

ce

(USD

cen

ts/k

Wh)

* Electricity price + Tradable Green Certificate (i.e. REC)Source: BMU 2008; ISI, 2008; Fouquet, D. et al., 2008; NREL 2009

FITs

RPS + RECs


FITs vs. RPS on Cost

EU research suggests that FITs offer better value for money

Expected Profit/kWh for Onshore Wind 2006

012345678

Ger

man

y

Spai

n

UK

Italy

Expe

cted

Pro

fit (E

uro

cent

s/kW

h)

FITs

RPS + RECs

Source: OPTRES, 2007; NREL 2009


RE Jobs and Economic Development

Total Jobs in RE Sector (2007)

0

50

100

150

200

250

300

Ger

man

y

Spai

n

UK

Italy

Tota

l Job

s in

RE S

ecto

r ('0

00)

N/A

Source: BMU 2008; EUROSTAT 2008; NREL 2009

FITs

RPS + RECs


FIT Ratepayer ImpactEstimated Ratepayer Impact in

Germany in 2007(USD $/household/month*)

01234567

Ger

man

yTo

tal R

E

Ger

man

ySo

lar P

V

Estim

ated

Rat

epay

er Im

pact

U

SD $

per

hou

seho

ld/m

onth

3811 MW

* 1 Euro = 1.29 USD; www.XE.com, February 10th 2009 Source: Bohme, D. et al., 2008; VDN, 2008; BMU 2008; NREL 2009

34 018 MW

http://www.xe.com/


How can FITs help meet US State goals?

1. Job creation (both up & downstream)2. Meeting RPS targets3. Fossil fuel price hedge 4. Stimulate rapid market growth in RE5. Foster cost-efficient RE development6. Target distributed generation7. Diversify energy supply8. GHG reductions9. Foster local ownership (greater

economic benefits)


Potential Impacts on State Drivers

State Policy Drivers

Specific State Policy Objectives

FIT PolicyImpacts Notes

Economic Objectives

- Job creation & Econ. Dev.- Stabilize electricity prices- Grow the state economy- Revitalize rural areas- Attract new investment-Develop community ownership- Develop future export opportunities

-High-High-High-Moderate-High-High-High

-FITs have been highly successful at driving economic development and job creation -Fixed contracts for RE can also help stabilize electricity rates

EnvironmentalObjectives

- Clean air benefits (SOx, NOx, Mercury, Particulates, etc.)- GHG emissions reductions- Preserve env. sensitive areas- Minimize impacts of energy dev.- Manage waste streams (biogas, landfill gas, biomass, ag. & forestry, etc.)- Reduce exposure to carbon legislation

-Moderate

-Moderate-Low-Moderate- High

-Moderate

-FITs have helped reduce the env. impacts of electricity generation-Differentiating FIT payments by resource type can also target various bio-waste streams.


Potential Impacts on State Drivers

State Policy Drivers

Specific State Policy Objectives

FIT Policy

ImpactsNotes

Energy Security

Objectives

- Secure abundant future energy supply- Reducing long-term price volatility- Reduce dependence on natural gas- Promote a more resilient electricity system

- High

- High

-Moderate

-High

- Well-designed FITs can improve overall energy security by helping diversify energy supply sources

Renewable Energy

Objectives

- Rapid RE Deployment- Meet RPS targets- Reduce fossil fuel consumption- Provide base-load generation- Stimulate green energy economy

-High-High-Moderate

-Moderate

-High

- FITs a jurisdiction meet RE targets.- FITs have also been successful in helping countries like Germany move toward a green energy economy.


How to implement a FIT in the US?

- Introduce as an alternative procurement mechanism to RFPs to meet RPS targets

- Establish clear interconnection standards to streamline access and reduce administrative barriers

- Introduce provisions on cost allocation (e.g. rate-basing, inter-utility cost sharing, T&D upgrades, etc.)

- Consider interactions with existing state & federal policies (ITC, PTC, MACRS, etc.)

- Address any legal and/or regulatory barriers to RE

- Consider local context and resource availability


FIT Best Practices

1. Payments based on the cost of generation Gainesville’s FIT is so far the only FIT in the US to be

based on RE development costs

2. Purchase guarantee (must-take provision)

3. Marginal costs integrated into the rate base (i.e. not via green power programs, treasury, etc.)

4. Payments differentiated by technology type, project size, location, and resource quality


FIT Best Practices

5. Contracts should be based on lifetime of the project (secures the hedge benefit and lowers financing costs)

6. Policy stability is as important as price stability to investors

7. Clear interconnection standards and cost allocation procedures (e.g. for T&D upgrades)


FITs in the Financial Crisis

In the midst of the financial crisis, FITs can help get RE projects financed and stimulate jobs:- US is down to four (4) tax equity investors- FITs facilitate debt financing

Reduce dependence on tax equity- FITs facilitate project financing through

price security- Proven mechanism to create jobs and

stimulate new industries- Help leverage capital investment from a

wider variety of investors, including untapped local capital


Coming Soon…

NREL Report on FIT Policy Design:

“Feed-in Tariff Policy Design and Implementation: Best Practices Guide” NREL, 2009

http://www.nrel.gov/docs/fy09osti/44849.pdf

http://www.nrel.gov/docs/fy09osti/44849.pdf


Toby CoutureEnergy & Financial Markets Analyst

Strategic Energy Analysis CenterNational Renewable Energy Laboratory

www.nrel.gov/analysis 1617 Cole Blvd.

Golden, CO 80401-3393P: (303) 384-7471

email: [email protected]

Thank you –

Questions?

http://www.nrel.gov/analysis

http://www.nrel.gov/analysis

mailto:[email protected]

State Clean Energy Policy Analysis: Renewable Energy Feed-in Tariffs

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