The Tailored FIT for California

Market uncertainty is the bane of any company’s existence. Renewable energy companies, in particular, face difficulties in getting off the ground without some market certainty, which is why many nations (and some U.S. states) have opted for a feed-in tariff policy to support renewable energy.

Feed-in tariffs (FITs), guaranteed payments for renewable energy, are now on the radar screen because they have been highly effective in Germany, Spain and many other nations. Germany added 1.5 gigawatts (GW) of new solar power alone in 2008 — ten times what California added in 2008.

I’ve written in the past about the benefits of FITs for California and we now have a good chance of seeing a well-tailored FIT become law. SB 523 (Pavley) contains an earlier version of the Renewable Energy and Economic Stimulus Act of 2009 (REESA), drafted in large part by this author. REESA is designed to promote renewable energy projects from half a megawatt to twenty megawatts. (It is an interesting lesson in legislative “sausage making” regarding how this language made its way into SB 523, but this is besides the point for this column!)

This market segment, what I call the “community-scale” market, is an orphaned market segment in California. There are essentially three market segments: small-scale, community-scale and large-scale. The California Solar Initiative (CSI) and the Small Generator Incentive Program provide significant incentives for small-scale solar, wind and fuel cells, up to one megawatt. These systems must be “net metered,” which means they have to serve on-site load first and any excess generation is banked in the grid and credited back to the customer on an annual basis. The best a customer can do on a net-metered system is reduce their bill to zero.

FITs are different. FITs allow a generator to sell power directly to the utility at a price set by regulators, for a contract up to twenty years. This creates the necessary market certainty I mentioned above and has been proven to be highly effective at bringing renewable energy online quickly.

At the other end of the scale, the Renewable Portfolio Standard (SB 1078) incentivizes large-scale renewable energy projects, generally twenty megawatts and above. Some of the proposed solar and wind power projects approach 1,000 megawatts in scale. We are fully supportive of this scale in theory, but we recognize fully that such projects have significant land use and other environmental impacts and that neighbors often fight tooth and nail against such mega-projects.

By providing a well-designed FIT for community-scale projects (also known as “wholesale distributed generation” because these facilities connect to the grid at the distribution level rather than on the demand-side of the meter), we can incentivize solar projects from half a megawatt to two megawatts on rooftops that don’t have sufficient on-site load for a net-metered system under the California Solar Initiative. There are a great many warehouses and other buildings or parcels of open land around California, close to load, that meet this definition. And they is going to waste under the CSI. The three major investor-owned utilities have proposed their own programs (with socialized risk and privatized profit) to access this market, demonstrating its validity as a market segment. But a comprehensive FIT is a far better approach than the piecemeal approach being requested by the investor-owned utilities — probably with much lower cost to ratepayers.

Moreover, with REESA providing support for any renewable energy projects up to twenty megawatts, we know there is enormous potential for tapping our renewable energy resources relatively quickly. A recent state report found tremendous potential around the state for twenty megawatt solar projects. These projects, tallying almost 28,000 megawatts (enough for about one fifth of the statewide electricity demand), will require minimal new infrastructure because they can be built close to existing substations. However, this report looked only at the state-wide potential for twenty megawatt solar PV projects, overlooking the much larger potential for projects between half a megawatt and twenty megawatts utilizing all renewable energy technologies.

The two primary problems for this market segment are pricing and permitting. REESA will take care of the pricing, through a tightly-crafted process involving the California Energy Commission and the Public Utilities Commission, and smart project developers will have to take care of the permitting — but they will face far lower obstacles than the mega-scale solar and wind projects proposed for various parts of California.

Ratepayer impacts are highly important of course — we shouldn’t build out renewables “at any cost” because there may be better ways to spend ratepayer funds. We’ve crunched the numbers, however, and found that achieving the renewable energy build-out (up to two percent of total load, annually, which is the maximum authorized by REESA) will likely result in less than a one percent ratepayer impact each year. This is the case because the process prescribed by REESA will result in just a few cents per kilowatt hour more for solar power (still the most expensive renewable energy technology) but a likely cost reduction for wind power and geothermal power, when we compare these costs to the status quo policies.

To sum it all up, REESA may be a real “game changer” in terms of opening up a huge new market for renewable energy. It will create thousands of new jobs throughout California and other ancillary economic benefits. We also know that there is a direct relationship between renewable energy capacity additions and a proportional reduction in natural gas prices due to reduced demand. And we are confident that the ratepayer impacts will be minimal in the short-term and probably very beneficial in the mid- to long-term as fossil fuel costs continue to rise and renewable energy costs continue to fall.

Please contact Senator Fran Pavley and other California legislators and let them know that you support REESA and SB 523.

Tam Hunt is Energy Program Director and Attorney for the Community Environmental Council. He is also a Lecturer in renewable energy law and policy at the Bren School of Environmental Science & Management at UC Santa Barbara.


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