Solar

The Local Feed-in Tariff Solution

Guaranteed payments for renewable energy, generally known as feed-in tariffs (FITs), have become extremely popular in the last few years. Pioneered in the US in the late 1970s and 1980s and then perfected in Europe in the last ten years, FITs have been very effective in bringing large amounts of renewable energy online quickly.

A new report from the National Renewable Energy Laboratory (NREL), one of our nation’s preeminent research organizations, has found that FITs have often been not only the most effective policy tool for new renewables, but also the most cost-effective tool. This is a welcome surprise to many of us in the renewable energy industry. The report concluded that FITs can bring renewables online quickly and “often more cost-effectively than under competitive solicitations.” (“Competitive solicitations” refers to systems like California’s Renewable Portfolio Standard, which has struggled for years to achieve the mandated level of renewables.)

California and a couple of other states have “weak FITs” in place. California’s current FIT, enacted by AB 1969 in early 2008, has brought only about ten megawatts of new projects online. California’s previous FIT, under the federal PURPA law that was effective in the 1980s, brought about 10,000 megawatts online! Clearly, we need more, as I’ve written about in previous columns.

The good news is that the Public Utilities Commission has proposed to expand, under its own very broad constitutional authority, the current FIT to ten megawatts (up from the current 1.5 megawatt limit) and has suggested that the pricing process needs to be revisited. If pricing is improved – eliminating the “market price referent” formula, which unwisely links renewable energy to the price of electricity from a new natural gas plant — the PUC proposal could itself be a major boost for community-scale renewable energy projects throughout California.

At the same time, a number of new FIT bills are pending in the California Legislature. AB 1106 is now the best of the bunch and will, according to the author, Assemblymember Felipe Fuentes, be amended to allow for more favorable pricing than under current law. This is a key change and will make this bill far better than its competitors. It also expands the size cap to 20 megawatts, another necessary change.

But what about local measures? Can’t local governments and businesses get into this game? The short answer: yes. Here’s how.

I’ve written previously about Community Choice Aggregation (AB 117) and how it is a highly promising way for cities and counties to take control of their energy future. But here’s the new twist: CCA can also be used to enact a local FIT.

Just about every jurisdiction has numerous rooftops and parking lots that are aching to be solarized. The problem is that pricing under current policies and market conditions is often difficult — just look at the large white rooftops when you fly into any airport in California and ask yourself why aren’t they all covered in solar panels? The answer is that it’s often not economically feasible due to lack of sufficient onsite load or lack of interest by building owners in taking the time to develop their resource.

To be clear, here’s the problem: many rooftops and parking lots that could support solar systems from 100 kilowatts to about 500 kilowatts aren’t being solarized because this size segment is “orphaned” by current policies and market conditions. There is a huge potential around the state for solar on these rooftops and parking lots. (A wonky aside: in the state FIT bill, AB 1106, that I’ve been promoting, we don’t recommend that the state-level FIT provide price support for facilities in this range because of the potentially higher cost to ratepayers around the state. But with the local jobs and other economic benefits, as well as low- or zero-interest bonds available to local governments, there is the potential to make these types of systems cost-effective).

Under CCA, however, local governments can create a local FIT option because CCA gives rate control to the members of the CCA organization (cities and counties). CCAs can also phase in service to their customers. For example, the San Joaquin Valley Power Authority, which is the furthest along in California in becoming an active CCA organization, plans to serve its own members’ power needs first (government buildings), then bring in industrial, then commercial and finally residential customers. This is a phased approach that takes some of the risk out of the CCA business model.

Following the same strategy — but with a new twist — CCA organizations may implement CCA initially as a way to incentivize the development of 100-500 kilowatt solar systems on rooftops and parking lots. They can do this by buying this power from private developers under a local feed-in tariff, and using this power to meet their own needs. Local governments may even be able to use zero-interest federal bonds (CREBs or QECBs) to provide low- or no-cost financing opportunities for private sector entities wishing to build these solar facilities and sell power to the CCA organization.

This is an elegant and creative way to phase in CCA, utilize unused rooftops and parking lots for solar and create economic opportunities — and green jobs — for many private sector entities. Under this approach, cities and counties may gain early support for CCA and strongly stimulate local economies into leading the charge for the green energy economy.

CCA, and the CCA-based FIT, is one of the most powerful tools available to cities and counties to accelerate the renewable energy transition and spur a broader movement in their regions.

Tam Hunt is a renewable energy consultant (www.tamhuntconsulting.com) and a Lecturer in renewable energy law and policy at UC Santa Barbara’s Bren School of Environmental Science & Management.