Why Did Gainesville Choose a FIT Over a Rebate?

Can you explain Gainesville’s solar feed-in tariff (FIT) program? Why offer this program instead of a rebate for solar? — Laura H., Newton, MA.

On March 1, Gainesville Regional Utilities (GRU), a municipal utility in Florida, initiated a feed-in tariff, which is a fixed-rate, long-term payment for PV systems based on creating a positive rate of return. Germany, which offers one of the original feed-in tariff programs, now has an installed capacity over 4 gigawatts (GW), has created 42,000 jobs, and the country’s total business value for solar is €5.7 billion (43% export quota), according to the International Energy Agency – PV Power Systems – Germany National Survey Report.

The feed-in tariff is not the first step for GRU in seeking a solar-inclusive generation portfolio. Gainesville’s PV rebate (which offered an additional US $1.50/watt to the state’s US $4/watt) and net-metering program accounted for nearly 13% of all the state rebate applications. However, the utility’s perspective on rebates is that they cause undesirable cash flows, do not guarantee solar system performance, and leave GRU responsible for policing system designs to ensure standards adherence.

GRU’s assistant general manager for strategic planning, Ed Regan, returned from the Solar Electric Power Association’s first fact finding mission to Germany in June of 2008 impressed with the FIT approach. He initiated analyses of converting the utility’s current $1.50/watt rebate combined with net-metering to a FIT. The initial highest tier is set at US $0.32/kWh, which is only $0.06/kWh higher (with a twenty-year contract) than the levelized value of the previous incentive (rebate + net metering). Most importantly, it is simple.

There are two short contractual agreements required — the Interconnection Agreement and the Solar Electric Purchase Agreement — and according to Ed, the message that “GRU will purchase all the energy produced by your PV system over the next 20 years for $0.32 per kWh” is easy to both communicate and understand. Additionally, the FIT model provides performance-based financial arrangements that are predictable, creates opportunity for creative business models that can capture tax benefits for customers and improves financial feasibility of solar PV for all customer classes.

With a 20-year contract, the FIT results in a 5% return on investment after taxes. However, residential customers can still opt for the rebate and net metering. Since initiating the tariff on March 1, applications have already been arriving rapidly. There is an annual limit of 4 MW to the program and it seems this will be easily achieved. Also, GRU targeted customer sited applications, with a reduced tariff for greenfields (large open field solar systems often greater than 1 MW in size and not near a customer load), and all applications have been within this target.

All utility participants returned from SEPA’s first fact finding mission to Germany, which included 31 utilities, with a greater understanding of the opportunities presented by solar-electric technologies, and the trip obviously sparked ideas for Ed Regan. SEPA is currently planning its next fact finding mission to Spain for May 2009. For more information on the Germany trip, please see the Germany Fact Finding Mission Summary Report.