Who Has the Most Cost-Effective Solar FiT Program?

John Farrell
June 25, 2012 | 5 Comments

In a new report on U.S. CLEAN (Clean Local Energy Accessible Now) programs, I provide a comparison of solar CLEAN Contract (feed-in tariff) rates across the United States.

Comparing published rates is not particularly helpful, however, because contract lengths vary (from 15 to 25 years) and the solar resource also varies widely. For international comparisons (e.g. Germany), it's also necessary to account for the currency exchange rate and the federal tax incentives that are routinely factored in to U.S. solar CLEAN prices.

Here's a look at the methodology for normalizing the CLEAN rates for comparison, and two maps illustrating those prices. The maps illustrate how Germany's mature solar market means they pay much less for solar than U.S. CLEAN programs, especially when accounting for the federal taxpayer subsidy of local CLEAN programs.

First, here are the published solar CLEAN prices for all U.S. programs that support residential solar, including Germany’s program. Contract prices are paid per kilowatt-hour (kWh) for the specified contract term.

Residential Solar CLEAN Rates (Germany and U.S.)

Location	Price per kWh	Contract Term
Germany	19.5 euro cents	20 years
Vermont	27.1 cents	25 years
Hawaii	27.4 cents	20 years
Gainesville	24 cents	20 years
Consumers Energy	26 cents	15 years
NIPSCO	30 cents	15 years

The first step is to convert all prices to U.S. dollars. I use an exchange rate of 1.3 USD to euros.

Residential Solar CLEAN Rates (Germany and U.S.; USD)

Location	Price per kWh	Contract Term
Germany	25.4 cents	20 years
Vermont	27.1 cents	25 years
Hawaii	27.4 cents	20 years
Gainesville	24 cents	20 years
Consumers Energy	26 cents	15 years
NIPSCO	30 cents	15 years

The next step is to normalize all contracts to 20 years. So we adjust prices down on shorter contracts and up on longer contracts to get an equivalent 20-year price (in net present value).

Residential Solar CLEAN Rates (Germany and U.S.; USD, normalized to 20 years)

Location	Price per kWh	Contract Term
Germany	25.4 cents	20 years
Vermont	31.7 cents	20 years
Hawaii	27.4 cents	20 years
Gainesville	24 cents	20 years
Consumers Energy	20.9 cents	20 years
NIPSCO	24.1 cents	20 years

Next we account for the variability in sunshine, normalizing to the solar insolation in Gainesville, FL (5.3 average annual kWh per sq. meter per day). Jurisdictions with weak sunshine relative to Gainesville will have their prices drop (because they can pay much less per kWh) and places with better sunshine will have their prices increase. Germany sees the greatest adjustment, because the solar resource quality there (in Munich) is just 3.28, compared to 5.3 in Gainesville.

Residential Solar CLEAN Rates (Germany and U.S.; USD, normalized to 20 years, Gainesville insolation)

Location	Price per kWh	Contract Term
Germany	15.7 cents	20 years
Vermont	25.9 cents	20 years
Hawaii	28.6 cents	20 years
Gainesville	24 cents	20 years
Consumers Energy	16.9 cents	20 years
NIPSCO	21 cents	20 years

At this point, we’ve removed all of the disparities between U.S. solar CLEAN programs and can see that some programs (e.g. Hawaii) pay 40% more for solar than the lowest cost U.S. CLEAN (Consumers Energy).

Residential Solar CLEAN Rates (Germany and U.S.; USD, normalized to 20 years, Gainesville insolation)

But participants in the U.S. programs are likely, if not expected, to take advantage of the 30 percent federal tax credit for installing solar. In Germany, on the other hand, there are no other financial incentives. So an accurate comparison to Germany would inflate U.S. solar prices by 30 percent. This apples-to-apples comparison shows that the Germans are paying 50 percent less for residential solar than comparable U.S. programs.

Residential Solar CLEAN Rates (Germany and U.S.; USD, normalized to 20 years, Gainesville insolation, no federal tax credit)

Location	Price per kWh	Contract Term
Germany	15.7 cents	20 years
Vermont	37 cents	20 years
Hawaii	40.9 cents	20 years
Gainesville	34.3 cents	20 years
Consumers Energy	24.1 cents	20 years
NIPSCO	30 cents	20 years

The implications of this are remarkable. Solar PV modules and arrays are sold on a world market, so hardware is unlikely to account for the price difference. Rather, the maturity of the German market has significantly reduced the installation and balance of system costs for small-scale solar.

That’s actually a very hopeful sign for the U.S., as these jurisdictions are using CLEAN Contracts to accelerate the growth of their solar market and capture those same cost savings. Our report provides more detail on these U.S. CLEAN programs, including some lessons learned that may help them mimic the success of Germany's solar feed-in tariff.

This post originally appeared on ILSR’s Energy Self-Reliant States blog.

The information and views expressed in this blog post are solely those of the author and not necessarily those of RenewableEnergyWorld.com or the companies that advertise on this Web site and other publications. This blog was posted directly by the author and was not reviewed for accuracy, spelling or grammar.

5 Comments

Allen Gerhardt
July 19, 2012

Here in Gainesville, I pay 11.5 cents/kwh for grid power, I am retired and cannot get much out of tax credits, since my taxes are low. Since the utility will only apply exported power as a credit, I am discouraged from installing a full size system, in addition to getting no incentive from the tax credit. The state legislator has determined that only utilities can use REC's, so we are being discouraged from using solar power , even as the utilities claim otherwise in their adds.

The cost of permits for solar are also unreasonable and far higher than the cost of electrical permit for an entire new house.

We still have a long way to go before solar power gets a fair shake in the market. Protectionism for established power production is preventing the wide spread adoption of solar power, and we have our political bribery to thank for that. http://abundantenergy.com/blog/utility-take-over-of-florida-solar-industry

http://www.renewableenergyworld.com/rea/blog/post/2011/08/clever-accounting-lets-utilities-cash-in-when-you-go-solar

Quentin Prideaux
June 26, 2012

This is great, and yes, encouraging. How about one more step - comparing the amount paid relative to the cost of local electricity to the consumer? So in Germany you only have to pay 1c per kWh over the market, but in Vermont it's 3c (numbers illustrative). For that matter you could compare relative to the cost of generation (if that figure is available, meaningful given the different costs of generation by source, time of day etc).

Osha Davidson
June 25, 2012

Thanks, John. And thanks for the map link.

John Farrell
June 25, 2012

@ThePhoenixSun Great questions. CLEAN programs in the U.S. are largely like Germany's, where you get the price for ALL energy production, not just for on-site consumption (this is not net metering). There were a couple exceptions (one Indiana program and the Iowa one). A comparative map would be great. I didn't include it in the report, but here it is: http://c1cleantechnicacom.wpengine.netdna-cdn.com/files/2011/08/average-electricity-price-by-state.png

Osha Davidson
June 25, 2012

Great post, John. Two quick questions: 1) Under Germany's energy law, RE producers get paid for excess production whereas in the US, the best most (all?) home-owners with rooftop solar can do is zero-out their utility bill. Is that correct and, if so, how does that fit into this report? 2) The cost of conventionally produced electricity varies tremendously by location. I may have missed this in your report, but I think it would be helpful to provide comparisons normalized as cents above conventional energy prices.

Add Your Comments

To add your comments you must sign-in or create a free account.

John Farrell

John Farrell directs the Energy Self-Reliant States and Communities program at ILSR and he focuses on energy policy developments that best expand the benefits of local ownership and dispersed generation of renewable energy. His latest paper,...