Environmentalists have long advocated feed-in tariffs as a public policy mechanism to spur massive development of renewable energy. However, as a policy mechanism, feed-in tariffs are technology neutral. They can be used to pay for fossil-fired generation as well as nuclear power.
Some opponents of nuclear power have gone so far as to call for feed-in tariffs for nuclear. They reason that if the nuclear industry had to publicly reveal their fully-burdened costs, politicians would choose cheaper and less risky renewable energy rather than face the wrath of their constituents.
This will soon be put to the test.
Within days the coalition government of Britain will introduce its so-called Electricity Market Reform (EMR) bill. The proposal will usher in a new era of feed-in tariffs for power generation, including tariffs for new nuclear plants.
Meanwhile the conservative state of Indiana has introduced--without much fanfare--a one-off feed-in tariff for synthetic gas.
One of the attributes of a well-designed feed-in tariff for renewables is transparency. Typically, the tariffs are set in a public process either through legislation or a regulatory proceeding. The tariffs are then posted publicly for all to see. Then it's a simple matter to compare the costs among various technologies.
With renewables this is often straightforward. Most jurisdictions use feed laws as the principal mechanism for meeting renewable policy objectives. They don't need to lard on subsidies from taxpayers to make a well-designed program work.
Under ideal conditions, politicians, consumers, and the public can see exactly what is being paid to all players with a feed-in tariff. The challenge, of course, is that all the costs are accounted for in the tariff and are not hidden through tax credits, grants, or other forms of direct and indirect subsidy.
While feed-in tariffs for renewables may be transparent, the same may not be the case for nuclear or coal gasification. There's a justified wariness that the tariffs for nuclear and coal gasification may not reflect reality. Or, at least the tariffs for nuclear and coal gasification may not be directly comparable to those for renewables.
First of all, accurate tariffs are those that result in plants being built and then operated. It makes no sense to compare a posted tariff that doesn't result in any new capacity or that is insufficient to operate the plant once it is built to tariffs that work. For example, a tariff that results in solar photovoltaics (solar PV) being installed on residential rooftops can't be compared to a solar tariff, as in Palo Alto, California, that doesn't result in any new capacity. The Palo Alto tariff for solar PV was too low to get the job done.
This simple requirement is easily met by short lead time technologies such as wind, solar PV, and biogas. But what about technologies, such as nuclear and coal gasification, where it may take a decade to bring a plant online?
Nuclear plants in particular have seldom been brought online at the estimated cost or within the time allotted. The tariff negotiated today may not reflect reality five years after the start of construction.
Half or three-quarters of a nuclear plant is still not a nuclear plant. With nuclear, and probably with coal gasification as well, it is all or nothing. Historically, there are cases where partially-built nuclear plants have been converted to fossil fuels.
Obviously a nuclear tariff that resulted in the start of construction in this case is not an accurate reflection of the "cost of generation plus a reasonable profit" if the plant is never operated as a nuclear plant.
The same problem of course holds for other high capital cost plants such as Integrated Gasification Combined Cycle plants using coal.
Indiana FIT for Coal Gasification
The Midwestern state of Indiana is in the heart of the Illinois coal basin and generates more than 90% of its electricity with coal.
As the province of Ontario closes its coal-fired power plants, Indiana is embarking on a program to use more coal through a feed-in tariff. Coal may no longer be king in Indiana, but it is still a very powerful prince.
During an earlier gas boom, Indiana was also one of the country's largest producers of natural gas. Much of the state heats with natural gas.
Now, the mud is flying in the state as the natural gas industry slugs it out with the powerful coal lobby.
While renewables advocates enjoy watching the fossil-fuel industry go at each others throats in this case, there's an important precedent that's been set — and it's been set in on of the more conservative states in the country.
The precedent is that a regulatory authority, in this case the Indiana Utility Regulatory Commission (IURC), determined a need and a price for synthetic gas. The IURC determined a need for a demonstration coal gasification project, approved a negotiated price for the gas produced, required gas utilities in the state to take the gas, and will spread the cost of the gas across all gas consumers in the state.
The program has all the elements of an effective feed law. There is a long-term contract. There is a fixed price. And costs are spread over all consumers of the commodity. In this case the commodity is gas, whereas it had been electricity in most jurisdictions up until now.
Whether this was done in an open, transparent, and public process without political interference will be determined by the courts.
The IURC's decision was made on the watch of Republican Governor Mitch Daniels, a one-time presidential aspirant. Under his direction the Indiana Finance Authority signed a 30-year contract with Indiana Gasification to purchase the synthetic gas at a fixed price of $6.60 per million British thermal units (mmBtu).
Unlike feed-in tariffs for renewable energy which are typically open to all comers, Indiana's coal gasification tariff is one off. The deal was not offered to all takers. The contract is with only one supplier, Indiana Gasification. Critics were quick to note that Mark Lubbers is the project leader for the parent company of Indiana Gasification. Lubbers was a former political director for Governor Daniels.