Vermont FITs Become Law: The Mouse That Roared

Vermont is now the first North American jurisdiction with small wind tariff.

Paul Gipe
June 01, 2009 | 13 Comments

Vermont's feed-in tariff legislation became law at the end of business on May 27, 2009. H. 446 is the first legislation calling for a full system of advanced renewable tariffs in the US to pass the legislature and become law. The bill includes changes to Vermont's Sustainably Priced Energy Enterprise Development Program (SPEED) that would implement a pilot feed-in tariff policy.

Vermont's action follows closely on that of the Ontario provincial legislature's groundbreaking Green Energy Act and with several states considering similar legislation, the Green Mountain state could be the tipping point for a rapid succession of feed-in tariff policies across the continent.

It may be small states, such as Vermont, and municipalities, such as Gainesville, Florida, that could drive new renewable energy policy in the US and not the big states of California or Florida that are hopelessly embroiled in partisan stalemates.

Unlike the policy in Washington State and in the crude feed-in tariff in California, Vermont's legislation bases the tariffs on the cost of generation plus a reasonable profit. Costs of the program in Vermont are borne by ratepayers, not taxpayers as in the Washington State system.

One unique feature in the Vermont program not found in Ontario is a specific tariff for small wind turbines, those less than 15 kW. Though several bills have contained proposed tariffs for small wind turbines, Vermont's legislation is the first to become law with long term contracts. The tariff of $0.20/kWh is the highest in North America.

Though it has a low program cap of only 50 MW, Vermont's feed-in tariff policy is a serious commitment by a state of its size. Vermont has a population of little more than 600,000.

Vermont's feed-in tariff program contains the key elements of the successful policies found in Europe.

    * Tariffs are differentiated by technology
    * Tariffs are differentiated by size.
    * Tariffs set on the cost of generation plus profit
    * Profit set by a reasonable rate of return
    * Long contracts terms
    * Regular program review

As the technology progresses, Vermont renewable energy advocates expect the tariffs will decrease. The bill directs the Vermont Public Service Board to review and reset the tariffs every two years. The first review begins September 15, 2009 when the PSC will open a case on the tariffs contained in the legislation.

Renewable Energy Vermont (REV) led the successful grassroots' campaign, the first of its kind in New England to focus on feed-in tariffs. REVs Executive Director, Andrew Perchlik, notes that "This law puts Vermont in a leadership role on renewable energy policy and will help to bring vibrant growth and development to our local renewable energy industry."

Here are several key elements of H. 446.

    * Program cap of 50 MW
    * Project size cap of 2.2 MW
    * Contract term: 20 years
    * Wind energy tariffs
          o <15 kW: $0.20/kWh
          o >15 kW: $0.14/kWh
    * Landfill and biogas tariff of $0.12/kWh
    * Solar tariff of $0.30/kWh
    * Future tariffs based on cost of generation plus profit less applicable tax credits and other incentives
    * Profit set at rate of return of Vermont electric utilities
    * Open a regulatory examination of the tariffs by September 15, 2009 and new rates set in January, 2010

Under Vermont law the governor had the choice to sign the legislation into law, veto the bill, or to let it become law without his signature. He chose the latter course to the joy of long-suffering renewable energy advocates in Vermont.

In a statement, republican Governor James Douglas said, "Even though this bill does set statutory standard offer rates, which I believe is inappropriate, because the Public Service Board must revisit those rates within the next four months and periodically thereafter, I will allow this bill to become law without my signature."

The effort now shifts to the Public Service Board to ensure that the hard won progress on tariff setting is not lost in the regulatory fog.

13 Comments

Jan Konigsberg
July 23, 2009

Paul Tousignant's contention that pollution is not included in the cost because there is "no hard dollar figure" is disingenuous, if not ridiculous: it's true that not all pollution is included in the cost of energy, but that's because the electric-power industry historically has been successful in blocking federal and state legislation and regulation that would require mitigation for the pollution-caused impacts and/or technical fixes to minimize pollution from the project -- all of which can be priced (mitigation and technical fixes can be expensive, which is why utiltiies oppose paying these "external" costs, with the implied consent of most ratepayers, who prefer cheaper energy to cleaner energy). Obviously, some air and water pollution controls are required by law and the equipment necessary to meet certain air and water standards have a "hard- dollar" price.

Benjamin Gorman
June 15, 2009

Paul,

Twist my words away if it makes you feel good, but be sure to read what I actually wrote.

I'm saying that the present gov't subsidies to the fossil industry compete unfairly with your proposed unsubsidized RE industry. That is obvious. What's apparently not obvious (but should be) is that we (as a people, as environmental stewards, as a species) have an urgent and drastic need to alter the status quo in order to achieve a very different, non-carbon (or carbon-lite) energy infrastructure. One way to do that is to shift some or all of the present energy subsidy away from the problematic (and nearly peaked) fossil industry and toward the renewable industry.

I said the present energy industries are the problem; the gov't merely backed the horse that was the best bet at the time--- say, starting about 100 years ago. Entrenchment is a failing of our government, perhaps, which tends to go to the highest bidder (Exxon-Mobil, et al.), which is always a failing of its people.

Renewables will grow and get cheaper as they get a foothold in the monopolized energy market; then market competition (and decreasing subsidy) will make them strong enough to stand on their own, or fail. But we MUST move off oil; hence, gov't intervention to effect that purpose.

paul tousignant
June 12, 2009

So it's a bad thing when the govt. subsidized nuclear or coal or petroleum, but it's ok when it subsidizes renewables... ummm, ok... not!

Renewables will grow as the prices go down - the growth is stunted as the prices are kept artificially high with subsidies!

Benjamin Gorman
June 12, 2009

Paul,

"So you are saying that a government regulated economy is better than a market based one?"

Gee, I don't think I said that. I'm saying that government regulation has a place in steering the market because--- this will be shocking, have a seat--- the market is not all-powerful, all-knowing, or infallible. One could certainly also make a case for the fact that there has probably never been a solely market-based economy here (anywhere?). Governments always "intrude"--- it is hoped, for the betterment of the people at large, though that may not always be true. But the present fossil energy industry is certainly NOT just market-based! It enjoys MONSTROUS subsidy and gov't intervention.

Brian has admirably elucidated the failings of mostly market-driven energy, such as outrageously-priced, taxpayer-subsidized nuclear, and externalized-costed, health-damaging fossils.

What a perfect opportunity for wisely-applied government regulation (I know, how often does THAT happen!) to step in and guide the markets toward the greater good, i.e., more environmentally friendly, if initially higher-cost renewables. Such subsidies should theoretically include sunsetting, to remove the hand of government from the steering wheel once the transition has been effected. That, to my thinking, is one purpose of government: the guide markets since they are fallible.

ANONYMOUS
June 10, 2009

Vermont...we truly rule!!

Feed in tariffs have been very successful in Europe - they've increased the penetration of renewables into the power mix quickly and also help to "level the playing field" with regards to participation between large corporations with significant financial backing and small end users looking to participate in the distributed energy movement. As an employee working in the community scale wind market, I am excited to see how the tariff changes the ownership structure of renewable energy in Vermont.

And...mouse nothing!! In case everyone else hasn't noticed...Vermont is and always has been a progressive trailblazer and a force to be reckoned with. From civil rights to health care to renewable energy, we have a long and rich history of independent thinking, direct participation and collaborative activism.

Brian Crounse
June 3, 2009

"Pollution is not included in the cost because there is no hard dollar figure for it."

That does not mean that pollution has no cost. Ignoring those costs leads to market failure, pure and simple. The fact that it's difficult to quantify the impact of air poor air quality on e.g. asthma rates, and place a value on that +/- X%, does not mean that e.g. the Clean Air Act did not, and does not, provide "measurable value" to those who benefit from better air quality.

What's the cost of raising sea levels by 20cm? Can we agree that it is >> $0?

Who pays for the nuclear industry's (lack of) liability, via the Price-Anderson Act? You and I, as taxpayers, not ratepayers. Maybe that's a good thing, and maybe not, but that's a real (avoided) *cost* that is not included in one's *rates*. Thus, nuclear energy has a baked-in subsidy of unknowable magnitude- though if we were to let Price-Anderson expire, we'd quickly find out.

Renewable energy sources provide tangible benefits, in terms of environmental quality, national security, rugged independence of local economies; these benefits should in part be allocated to the producer of these external goods.

Chris Brosz
June 3, 2009

Paul - talking w you again, how nice. Few salient points:

First, electricity does not all have an equal value; it varies quite drastically depending on the time, as demand is not constant. Supply and demand principles, right? Thus, this disparity in value should be reflected in the FIT rate. Solar generation, for example, follows most utilites' demand profiles as close as any RE tech, offseting peak demand. This then obviates operation of open cycle peaker plants, saving both fuel and carbon emissions. These electrons are worth more than those generated by wind turbines, which are typically at their peak during the middle of the night when they are least useful. Biogas/AD are baseload generators, which are quite valuable, and should be priced accordingly. utilities commonly compensate for these values by putting their larger costumers on a TOU tariff to discourage peak consumption.

Second, re: your comment about competition, ignoring the time pressure that I spoke to in the other post, FIT's are paid w respect to PRODUCTION. i.e., the better your system performs, the more money in the pockets of the system owner/investors. THis is all the incentive needed to satisfy the avarice of the market, and innovation will continue to push onwards. Just because it's profitable, does not mean companies won't continue to try and improve efficiency. They'll continue, as they are currently doing, to streamline mnfg processes and to increase generation efficiency. both factors improve project economics. don't see how a FIT would stop this.

paul tousignant
June 3, 2009

Brian - your public service commissions include external costs, including spent fuel storage, when rates are set. The quality of electricity is voltage and amps. There is no justification to force consumers to pay a higher price simply because the generation source has a higher cost.

Pollution is not included in the cost because there is no hard dollar figure for it. If they had their way, the demoncrats would add a cost with cap-and-trade which will greatly increase everyone's cost of energy with no measurable value.

Brian Crounse
June 3, 2009

Paul,

Please define "quality" for the production of electricity. Are external costs such as generation of air pollution relevant? I would certainly argue that they are.

How about environmental costs due to mining of coal and/or uranium? Political costs of covering liability for nuclear plants (see: Price-Anderson Act), and deciding where to store radioactive wastes? (For the record, I'm not strongly anti-nuke, but it's hard to think of an industry that relies more on the government for survival- the current domestic auto industry excepted).

Electricity generation involves a lot of external costs. Econ. 101 informs us that a free market with no mechanisms for addressing external costs ends up with market failure.

A feed-in tariff is one way to address the issue of external costs. On balance, renewable energy sources have lower external costs; a higher price for these sources helps to account for that.

Mary Saunders
June 3, 2009

I agree with Paul Tousignant. After loan costs are paid, there are few costs for many solar installations, so perhaps it will be decided that providers should not be paid. If the price paid is not related to need and to the market, a system is too far off from reality to be properly incentivized. What's more, it starts out being regressive for those ratepayers who do not have the capital to get in the generation game. If Vermont is a relatively wealthy state with social programs that support the un- and under-employed, this won't rob the poor to pay the rich in quite so harmful a way, but this kind of system should not be exported to larger states with bigger gaps between rich and poor.

paul tousignant
June 3, 2009

So you are saying that a government regulated economy is better than a market based one?

Isn't the goal of all business to produce the product at the lowest cost, to maximize profit? (Business 101) It makes no sense to pay a higher price because the production method is different, if there is no difference in quality.

Competition fuels innovation (no pun intended) - if there is no competition or incentive to improve cost because the profit is built in, how will renewables ever get to the point where they compete with fossil fuels?

Benjamin Gorman
June 3, 2009

The purpose of governmental regulation (arguably, in this case) is to direct or balance economic systems in ways the market fails to do. Vermont legislature perhaps concluded that variable tariffs will help to promote a diversity of RE technologies rather than a single one--- which, per Mr. Tousignant, above, would be a tendency of a single tariffs rate (people would tend to install the most profitable technology, if they were interested only in obtaining the tariff monies). I don't know for certain that the variable rate tariff will actually have a diversifying effect; no one yet does. I applaud Vermont's experiment and look forward to seeing how it plays out. They appear to be eager to keep a watchful eye on it, given the first review date in September.

paul tousignant
June 3, 2009

Feed-in tariffs are the right way to go to promote small scale renewable projects... but to base the price on the source technology is not fair to the utility or the customer. Electricity is not different regardless of how it is generated - from solar, wind, biomass or coal - the price should not be different. The price should be set at the prevailing prices at the time of generation. If there is profit, fine. If not, at least there is some return on the investment.

Utilities are required by the public service commissions to provide power to the population and are compensated fairly based on the investment. Non-utilities do not have the mandate to provide power and should decide if the investment is viable based on the price, that is the nature of business.

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Paul Gipe

Paul Gipe has written extensively about renewable energy for both the popular and trade press. He has also lectured widely on wind energy and how to minimize its impact on the environment and the communities of which it is a part. For his...