What we really need in future feed in tariffs

Debating the cost of switching to renewable energy is a hidden trap, says Navigant Consulting’s Paula Mints. Instead, we need to focus on what future incentive programs must address: distributed generation, technology investments, controllable demand, and long-term viability.

by Paula Mints, Navigant Consulting

February 2, 2011 – Successful though these tools are at stimulating a market for solar, it is time for a change in feed-in-tariffs (FiT). Granted, with the solar industry still in its adolescence, it is too soon for drastic change — costs, with all manufacturing subsidies leveled out globally, are still too high to be competitive, margins are too constrained, and the future is still risky. Yet FiTs, as the PV industry has come to know and enjoy them, need to change before they bring about a complete collapse of government patience with the expense of moving from a carbon economy to a renewable one.

It is a fact that conventional energy technologies receive significant subsidies, and that these long-time and long-term subsidies are invisible to energy customers. It is also a fact that though people pay lip service (excuse the cliché) to understanding the true cost of fossil fuels in terms of energy vulnerability and pollution (and its side kick, poorer health), these concerns fade away like the Cheshire Cat in Alice in Wonderland when factoring in the cost of the switch to renewables as the primary energy generation source.

Say what you like about the cost of switching to renewable energy (referring to all renewables), here’s what they do not include: gas line explosions in residential areas, pipeline ruptures under the sea, coal mine collapses, and futile attempts to breathe air that is so thick with pollution that you can slice it like pie.

Just as the industrial revolution was expensive, the energy revolution will also tax our ability to pay for progress, particularly as that progress may leave some temporarily out of the quotidian. For example, those who mine coal will have to be retrained, and this is doable. Those who own mines will have to reinvest, perhaps in clean energy, and this too is doable.

In the meantime, the solar industry needs incentives that do not overtax markets too severely (because, like it or not, incentives must be supported by someone), and that simulate the market without overheating it. This likely means program caps, different methods of setting rates (or tariffs), and logical degressions that are not tied to price (as differentiated from cost).

Of course, conventional energy has not had to endure degressions in subsidies for the most part.

Here are some other priorities that future solar industry incentives need to accomplish:

  • Allow distributed generation (DG) system owners to be paid for everything they feed into the grid over and above their own usage. Support more energy at the point of use, and find creative ways to do so — that is, a combination of rooftop, ground mount, and multi-megawatt installations.
  • Encourage the formation of energy co-ops, grass roots organizations wherein neighborhoods (for example) jointly own their electricity production, similar to the remote village grid application or a communal garden for vegetables.
  • Invest in large, off-grid systems for the developing world so that the sustainable standard of living for all is raised, and invest in upgrades to transmission and distribution.
  • Define, once and for all, just what is meant by the phrase “smart grid” — this is in danger of becoming meaningless.
  • Reduce the use of fossil fuels aggressively (year by year), set a limit on carbon producing technologies, tax over usage severely, and do not allow the overage to be traded away.
  • State and federal governments need to invest in technology: R&D, pilot scale, and some level of commercial production, in proven technologies and in those that may not be commercial for 10-20 years. And don’t get so smitten with lofty goals such as $1.00/watt installation costs that you summarily ignore the task at hand — the switch to renewables is possible now with current technologies.
  • Understand that electricity generated at a distance from the load is a commodity, and that a solar system on the roof can be considered an appliance — it can and should be both. Governments also need to understand that differences in form factor do not necessarily ensure success, and that the right business model is equally important. Again, solar panels installed in remote areas in multi-megawatt configurations are generating a commodity (electricity), and in these cases it does not matter what the modules look like.

Back to the changing FiT model. Once upon an industry, there were no incentives and demand was low. Then Japan, Germany, and California pioneered capacity-based rebates and demand was stimulated. Then Germany showed the world the way forward with the FiT incentive model and demand exploded, finally ballooning beyond all reasonable affordability.

Now we’re at the next crossroads, where a new structure needs to be put into place that will allow for reasonable margins while stimulating controllable demand and ensuring the long-term viability of necessary incentives. Globally — but specifically for the United States — governments need to make a mindset switch and start ratcheting down the use of fossil fuels — NOW. Conventional energy is a long-time trend, but renewable energy and solar is trend-setting. As iconic American movie director Frank Capra once said: “Don’t follow trends, start trends.” To that we should add, “…and follow through with them.”



Paula Mints is principal analyst, PV Services Program, and associate director in the energy practice at Navigant Consulting. E-mail: pmints@navigantconsulting.com.

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