The Case for Renewable Feed-In Tariffs

EUEC Energy & Environment ConferenceTucson, Arizona

January 28, 2008

Jeffrey H. Michel, MSc.Ing.-Büro Michel

Community of Heuersdorf04565 Regis-Breitingen

Germanyjeffrey.michel@gmx.net

Renewable energy investment potential does not uniformly reflect implementation.

Aggregate long-term investment prospects for wind, solar, and biomass power generation

Ernst & Young Global LimitedRenewable Energy Country Attractiveness Indices, Third-Quarter

2007

1. United States (highest overall renewables potential)2. Germany (upgraded due to proposed increased target of

45% of renewable power generation by 2030)3. India (high wind index, subsidies and tax benefits)4. Spain (renewables legislation modeled after Germany)5. United Kingdom (downgraded due unlikelihood of 10%

renewable power generation by 2010)

Renewable power generation constitutes an economic response to certain forseeable events.

Solar power offsets midday air conditioning load peaks and summertime overheating of power plant cooling water.

Wind and wave power deliver peak output in stormy weather when buildings cool out faster.

Hydropower exhibits greater availability during periods of high municipal rainwater pumping demand.

Biogas generation varies in step with energy-intensive livestock production.

Interlinked renewable generation provides dispatchable power decoupled from imports.

Persistent impediments in the USA inhibit full realization of renewable energy potential.

• No long-term national renewables policy = inadequate planning and investment security

• Dependence on publicly funded incentives = intricate application procedures and frequent budget limitations

• Net metering for grid power feed-in = only partial recovery of equipment costs from energy production

• Highly population mobility (40 million address changes annually) = home installations often impractical

• Anticipation of future price reductions = renewable investments deferred

• Absence of greenhouse gas reduction targets = no economic motivation for lowering emissions with renewables

Renewable energy implementation in the USA (e.g. California) lags signficantly behind

Germany.

California Energy Commission: “Between 1996 and December 31,

2006, Californians placed 198 megawatts of PV systems on the roofs of their homes, businesses,

government, and schools.”

“California has set the goal to create 3000 megawatts of new,

solar-produced energy by 2017.”

www.gosolarcalifornia.ca.gov

In the same period, Germany

had already realized 2700

megawatts of photovoltaic

capacity using enhanced tariffs

for grid power feed-in.

Germany employs renewable energies to reduce dependency on nuclear power and fossil fuels.

Phase-out by 2021 of all nuclear power plants (30% of current generation) has been legislated to avoid “another Chernobyl”.

75% of Germany’s energy supplies are imported.

Landscape devastation equivalent to excavation of Suez Canal every 25

days results from mining 180 million tons of lignite per year for generation of

one quarter of Germany’s electricity (150 TWh/a).

Lignite covers 12% of German energy usage but produces one fourth of national CO2 emissions.

Kyoto fulfillment in Germany is impossible without additional reductions of carbon emissions.

CO2 constitutes 87% of all German

greenhouse gas emissions.

Five new lignite power plants entered

service in eastern Germany in 1997 –

2000, ushering in an era of new coal plant

construction that must be reversed or

offset.

Grid feed-in of renewable power supersedes CO2 emissions from fossil fuel generation.

German grid operators have been required since

2000 to buy electricity from renewable energy generation on a priority

basis at tariffs prescribed by the EEG:

German English

Erneuerbare RenewableEnergien Energies

Gesetz Act

German grid feed-in legislation provides low-risk investment coverage of renewable generation.

EEG (Erneuerbare Energien-Gesetz) The Renewable Energy Sources Act revised in 2004:

www.erneuerbare-energien.de/inhalt/40066/36356/

The EEG insures fixed tariffs for unlimited feed-in of electrical power into the national grid from all types of renewable generation.

The tariffs, graduated according to technology and placement, are guaranteed over a sufficient period (usually 20 years) to insure cost recovery.

Feed-in payments are shared equitably by all grid customers irrespective of their own participation in renewable energy production.

Renewable Energy Grid Feed-In Tariffs guaranteed for 20 years (except for hydro)

The degression factor reduces the feed-in tariffs each year for new installations to stimulate technological innovation and manufacturing efficiency.

Solar power is made profitable by assured investment payback.

Incceased feed-in tariffs compensate for higher specific realization costs in smaller systems.

Guaranteed feed-in tariffs impose negligible financial burdens on the ratepayer.

The feed-in compensation paid to producers

constitutes 3% of total power expenses invoiced

to private German households (2006).

Ongoing power rate increases are reducing

the effective burden of the EEG.

• Fixed feed-in tariffs consist of regular grid power charges enhanced by mandatory utility price supports. No government funding is employed.

• Price fixing (Preisbindung) likewise applies in Germany to books, sheet music, maps, tobacco products, taxi services, and prescription medicines to prevent commercial corporations from undercutting small retailers.

• Fixed prices provide enduring economic and social benefits detached from volatile market prices.

German feed-in tariffs are not subsidies, but

instead legally guaranteed prices for producers.

Renewable feed-in payments enable higher costs to be avoided.

The emissions of fossil fuel power plants impose a three to eightfold

greater environmental burden than renewable energy generation.

Grid feed-in power from renewable energies has increased by 37% in only two years.

The German feed-in law has become indispensible to energy security.

Wind and biomass generation now supply more electricity that hydropower due to the EEG.

Solar power provides enduring cost and stability benefits for the grid supply.

Solar power is delivered at the same time that power trading prices are highest, reducing outlays for power purchased from third parties.

Power Trading Prices Leipzig EEX

PV Daily Output Curve

Feed-in tariffs have made Germany the world leader in solar power.

55% of all solar power capacity worldwide is located in Germany.

15 additional solar production facilities will have been erected in 2007 – 2008.

The renewables industry employs over 235,000 people and uses more steel than shipbuilding.

Photovoltaic Factories

Solar will have increased more than fourfold between 2005 and 2010.

Large-scale photovoltaic systems in Germany are growing in size and number.

Small-scale systems comprise over 90% of German solar generation capacity.

Decentralized solar generation minimizes transmission losses.

Feed-in tariffs in Europe are accelerating cost convergence with conventional generation.

18 European countries and Turkey have

adopted renewable energy feed-in

legislation.

Cost convergence – once predicted for 2025 – is made more imminent by rising oil prices, CO2 trading, and the

EEG.

Reduced risk feed-in tariffs deliver lower prices compared with renewable energy certificates.

High numbers and diversity of EEG systems are beginning to provide dispatchable power.

In the German pilot Combined Power Plant project, 1/10,000th of the national renewable power potential is currently being supplied by

interlinked generation and storage installations.

Initiator: Renewable Energy Campaign Germany

www.kombikraftwerk.de www.unendlich-viel-energie.de

Renewable energies can replace all coal and nuclear grid power in Germany.

Current non-hydro renewable generation

provides nearly one fifth of the power necessary to supersede coal and

nuclear power in Germany.

Existing hydropower and combined heat and

power generation must not be substituted.

Total substitution requirement: 411.3 TWh/a

www.unendlich-viel-energie.de

Prerequisites and urgency for a national renewable energy feed-in law in the United States

The USA has the highest investment attractiveness rating worldwide for renewable energies.

Dependency on imported oil may rise from 52% (2000) to 64% by 2020.

A 50% increase of domestic gas production might not meet demand.

Greenhouse gas emissions could increase by over 40% within two decades.

The most optimistic scenario (advanced technology targets) of the Electric Power Research Institute predicts 11.3% renewable power by 2030, less than what Germany has already achieved. Conventional generation may have increased by 36% during the same period.

National feed-in tariffs are justified for interstate trade in renewable energy, which must consider future storage capabilities of plug-in hybrid automobiles.

Components of effective feed-in legislation for renewable energies

Feed-in income must permit full payback of equipment costs, rendering public subsidies for renewables generation superfluous.

A separate power meter is essential for measuring feed-in power (and income) independent of consumption.

Special tariffs will be required in the future for plug-in hybrid automobiles to distinguish between three modes of grid interaction: battery charging, withdrawal of battery energy by the grid operator, and onboard motor generation for supplying additional grid power.

Grid storage invoicing may be integrated into the metering concept to account for shifts between generation and consumption.

The use of smart feed-in meters with Internet connection will allow tracking the geographic distrubution of renewable generation for incorporation into national supply strategies.

Website for designing Feed-In Tariff (FIT) legislation

http://onlinepact.org

PACT Policy Action on Climate Toolkit

EEG policy brochure from the German Environmental Ministry

www.bmu.de/english/renewable_energy/downloads/doc/40066.php

EEG – The Renewable Energy Sources Act

“You too can use the potential of the EEG and start producing your own, climate-friendly energy.” Sigmar GabrielFederal Minister for the Environment, Nature Conservation and Nuclear Safety