Bioenergy, Geothermal, Solar, Wind Power

Building a FIT Renewable Energy Market in the U.S.

As renewable energy developers and generators in the U.S. maneuver through a patchwork system of tax incentives, renewable energy credit markets and net metering policies, many in the industry are calling for the adoption of a national feed-in tariff (FIT), which they say will create a more simple, stable market.

Adding to the call for a U.S. FIT were two high-level political figures attending the Washington International Renewable Energy Conference (WIREC) in Washington, D.C. last week. U.S. Representative Jay Inslee (D-WA) and former California Energy Commissioner John Geesman have joined a growing number of FIT supporters who want to bring the renewable energy promotion policy to the U.S.

Geesman came out in support of a FIT for the state of California last October. He reaffirmed his commitment to FITs at a WIREC side event last Thursday, saying that they are the “best way to rapidly bring down the cost of renewable energy technologies and allow the state to live up to its aggressive policy targets.”

Congressman Inslee, who will soon introduce FIT legislation to the House of Representatives, said that a national performance-based incentive will “open the floodgates to innovation and the growth of these industries,” and help rebuild the shrinking U.S. manufacturing base.

“We used to hold 40 percent of the world’s photovoltaic manufacturing capacity, and now we’re down to 7 percent,” Inslee said. “That’s in large part because…these feed-in tariffs have spurred the development of their industry. So we want to get back in the game and the way to do that is to tell producers of renewable energy that they will be guaranteed a price [for their energy].”

Now operating in 37 countries around the world, FITs are viewed by many people in the industry as the key to rapid, uncomplicated deployment of clean energies. Under a FIT law, renewable energy generators who connect to the grid are guaranteed a payment for the electricity produced by their system over a 15-20 year period. Tariff prices can vary based upon technology type, size of system and geographic location and are stepped down each year to reflect the cost-curve of each industry. The incentives are paid for by charging each ratepayer a small fee on their monthly utility bill. It is commonly said that the monthly fee in Germany is “about the same as a loaf of bread.”

FITs in countries such as Denmark, Germany, India, Italy and Spain have created strong wind and solar photovoltaic (PV) markets and have added tens of thousands of jobs to the manufacturing base in those countries. Most importantly, say advocates of the law, the predictability of the market in countries with FITs makes investment in the industry much easier than in the U.S.

Talk about FITs seemed to be everywhere at WIREC, a policy-oriented event sponsored by the U.S. government. Helping drive the discussion was an entourage of FIT supporters from the World Future Council who are doing everything in their power to spread awareness about the law.

“This is the moral imperative of our time. We believe that the most effective way to develop massive amounts of renewable energy over a short time frame is to implement a feed-in tariff,” said Miguel Mendonca, Research Coordinator for the World Future Council and author of a book on FITs.

Adding urgency to the debate over FITs is the prospect that the federal production (PTC) and investment tax credits (ITC) will expire at the end of the year. The uncertainty surrounding the extension of the tax credits is keeping lenders from handing out money and developers from moving forward on projects.

“Already, major wind farm development companies are telling us that investment is drying up and they are being forced to put large projects in the pipeline for construction next year on hold,” said American Wind Energy Association Executive Director Randall Swisher at a press conference in January. “We currently estimate that some 75,000 jobs are being placed at risk including more than 32,000 in the direct manufacture, construction and operation of wind energy facilities.”

Industry leaders are currently pushing for a two-year extension of the PTC, which would move the uncertainty forward to 2011. Because a FIT law offers renewable energy generators incentives for up to 20 years, this type of political wrangling could be effectively avoided, paving the way for more investment and technological innovation, said David Edwards, an equities analyst for Morgan Stanley.

“I work throughout a variety of industries, and the U.S. renewable energy industry is the only market that I have to pay very close attention to policy,” said Edwards. If the U.S. wants to be a leader in renewables development, he said, it desperately needs to think longer-term.

According to the newly released 2007 Renewables Global Status Report, the U.S. has the third highest renewable energy capacity online. The potential for the U.S. to take the overall lead is great. In 2007, the U.S. wind industry installed 5,200 megawatts (MW) of wind — 2,000 MW more than China and Spain. The solar industry installed over 100 MW of grid-tied PV systems in 2006, mostly in California and New Jersey. However, many analysts are predicting reduced growth in the wind and PV markets because of both the federal PTC/ITC debacle and the complicated nature of the California and New Jersey PV incentive programs. That slowdown could allow other countries to leap ahead of the U.S. in overall renewables development.

Most FIT supporters see the law as a supplement to existing promotion policies, not as a completely separate alternative. Drastically changing the many state programs around the country would hinder market growth rather than help it, said Paul Gipe, an industry analyst and FIT advocate.

“FITs create a relatively simple system and we absolutely need them if we are going to develop meaningful amounts of renewable energy. Will FITs necessarily replace our current promotion policies? No. But it will work along side them and allow us to meet any targets faster,” said Gipe.

Of course, not everyone believes that FITs are the best way to develop renewables. Jigar Shah, Chief Strategy Officer for SunEdison, the largest power purchase provider for PV in the North America, believes that FITs would be far too complicated to implement in the U.S. Shah has said that federal and state-level Renewable Portfolio Standards (RPS) are the most cost-effective way to develop solar and other renewables.

“Renewable energy industries and U.S. policy makers have been negotiating programs such as Maryland’s RPS for at least the past five years. Questions such as interconnection, net metering, and utility reimbursements have largely been solved in the U.S.,” wrote Shah in a recent critique of FITs. “Those negotiations still lie ahead for Germany, and they won’t be tackled until the FITs expire in 20 years. In essence, Germany is trying to drive from zero to 60 mph in second gear. Second gear may have brought the country its 30-mph success rapidly, but going from 30 to 60 is likely to be slow.”

Many others in the industry question the prudence of adding another law to the mix when they have fought so long to build state RPS markets and possibly create a federal RPS. There are also concerns that a FIT law may cause utilities in deregulated energy markets to lose customers. But FIT supporters say that the consequences of inaction could be far more drastic — the U.S. could lose its chance to be a leader in the Energy Revolution.

In 2006, Germany installed 968 MW of PV, accounting for half of the global market. That same year, the U.S. installed 100 MW of PV, despite having three and a half times the population and 27 times the land mass. Many in the industry say that the way to replicate the success seen in Germany is to take lessons learned from existing RPS programs in the U.S. and apply them to lessons learned from other European countries with FITs.

“I think [a FIT] is a good compliment to a federal Renewable Portfolio Standard,” said Representative Inslee. “It will take some time…but the good news is we don’t have to be the first. We’ve seen the success in Europe — we can all move ahead together on this.”