Project Development, Solar

Los Angeles Set To Launch a Feed-in Tariff Program

A feed-in tariff may never become a federal mandate, but it’s enjoying a wider support among some local — particularly municipal — utilities these days. To wit: Los Angeles City Council on Tuesday approved a feed-in tariff program that will enable the Los Angeles Department of Water and Power to buy renewable electricity from projects up to 3 MW.

The vote makes it possible for a utility to execute standard contracts with renewable energy generation owners without first seeking the city council’s approval. The mayor will need to sign off on the ordinance by April 13 before it takes effect. 

The program will start with a 10-MW pilot phase and reach 75 MW by 2016, and it could expand to 150 MW depending on how much interest the program draws and the city’s budget. The utility will spend the next several months working on rate setting, which will be based on bids submitted by applicants. The power it gets through the program will count toward its goal of getting 33 percent of its electricity from renewable sources by 2020.

The FIT isn’t the first renewable energy incentive program in Los Angeles, which offers rebates for solar electric system installations at homes and businesses. The rebate program, re-launched last September, has been so popular that the city has given out all of the budgeted allocation for non-residential systems for the current fiscal year, which ends on June 30.

Feed-in tariffs are responsible for igniting a solar energy boom in European countries such as Germany and Italy, as well as Canada’s Ontario province. China started its own last year and Japan, scarred by the nuclear disaster from last year, is set to start a feed-in tariff program this July.

The Japanese government is still working on setting the rates with which to pay renewable energy project owners, and under the current proposal solar projects could get equity returns as high as 44 percent, according to Bloomberg New Energy Finance. Wind projects could earn 51 percent. As a result, Japan then could add 20 GW of wind and solar power production capacities by 2014.

Palo Alto, a city in Silicon Valley, adopted a feed-in tariff program for solar earlier this year. That program is smaller — there is an installation cap of 4 MW for its first year. 

The Los Angeles utility still have to figure out the rates, but those rates can’t be more than $300 per megawatt-hour, or $0.30 per kilowatt-hour, the city said. The utility has done its own analysis and found that the average price should hit $0.18 per kilowatt-hour, according to a report by the city administrator.

The utility estimates that the first 10MW, which it considers a demonstration program, will cost an esimated $58 million through the middle of 2033. The demonstration program will only include solar electric systems between 30 KW and 999 KW. The current program guidelines call for bids to be submitted by applicants, and applications with the lowest prices will be ranked higher.

Price-setting is a tricky part of crafting a feed-in tariff program. Setting rates too high could result in unexpected high demand that exceeds the budget. An installation cap helps, though some renewable energy proponents believe it could restrict growth unnecessarily. Competitive bidding helps to keep the contract prices low, but it also could lead to bids that are simply too low to be profitable. 

In some countries with feed-in tariffs, such as Germany and Italy, the rates could fall significantly because of budget shortfalls or politicking, and that sometimes creates a boom-bust cycle that many manufacturers and project developers would rather avoid.