NREL is a national laboratory of the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy operated by the Alliance for Sustainable Energy, LLC SCEPA Webinar Toby Couture Energy & Financial Markets Analyst February 12, 2009 State Clean Energy Policy Analysis: Renewable Energy Feed-in Tariffs
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State Clean Energy Policy Analysis: Renewable Energy Feed-in Tariffs
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NREL is a national laboratory of the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy operated by the Alliance for Sustainable Energy, LLC
SCEPA Webinar
Toby CoutureEnergy & Financial Markets Analyst
February 12, 2009
State Clean Energy Policy Analysis:Renewable Energy Feed-in Tariffs
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Feed-In-Tariff Definition
Feed-in Tariff (FIT)*: A renewable energy policy that offers a guarantee of payment to renewable energy developers for the electricity they produce.
These payments can be comprised of:1: Electricity sales, or2: Electricity sales + RECs
* Also called fixed-price policies, minimum price policies, standard offer contracts, feed laws, feed-in laws, renewable energy payments, renewable energy dividends, and advanced renewable tariffs.
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Fundamental FIT Payment Choice
Time
FIT
Purc
hase
Pric
e (c/
kWh)
FIT Price(c/kWh)
ElectricityPrice(c/kWh)
(2) Premium
FIT Payment
(above market price)
(1) Fixed Price FIT Payment
Time
FIT
Prem
ium
(c/k
Wh) FIT Premium
(c/kWh)
ElectricityPrice
Actual FIT Premium Amount (c/kWh)
Fixed Price FITs
most common
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FIT Policy CharacteristicsFIT policies generally:- Guarantee grid interconnection for RE- Provide a purchase guarantee (“must-take”
provision)- Involve a separate supply-oriented meter
(i.e. not net metering)- Are differentiated by technology type, project size, location and resource quality- Are designed to ensure the profitability of RE investments by basing the per kWh payment on levelized RE project costs
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Feed-in Tariff Misconceptions
- FITs are not a “foreign” policy- Utilities have been signing cost-recovery + profit
contracts for decades, only for conventional generation
- Modern FITs are different from PURPA
- FITs can be compatible with an RPS mandate- The real question is between FITs and competitive
solicitations (RFPs)- They are two alternative procurement mechanisms
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FIT Policy: Application in the U.S.
One state with enacted FIT legislation based on avoided cost (CA)One state with utility-specific premium price FIT policy (VT)Three states with enacted utility-based FITs (OR, WA, WI)Six states (+ 2 municipal utilities) with proposed FIT legislation based on RE project costs
Source: Adapted from Gipe www.wind-works.org, NREL Feb 2009
Gainesville, FL (approved)
Los Angeles, CA
(proposed)
Palm Desert, CA
(proposed)Rhode Island (proposed)
Note: As of Feb 2009, no US states have implemented comprehensive FITs based on the cost of RE generation.Gainesville Regional Utilities, a municipal utility, has approved the first U.S. cost-based FIT for solar PV.
One state with enacted FIT legislation based on avoided cost (CA)One state with utility-specific premium price FIT policy (VT)Three states with enacted utility-based FITs (OR, WA, WI)Six states (+ 2 municipal utilities) with proposed FIT legislation based on RE project costs
Source: Adapted from Gipe www.wind-works.org, NREL Feb 2009
Gainesville, FL (approved)
Los Angeles, CA
(proposed)
Palm Desert, CA
(proposed)Rhode Island (proposed)
Note: As of Feb 2009, no US states have implemented comprehensive FITs based on the cost of RE generation.Gainesville Regional Utilities, a municipal utility, has approved the first U.S. cost-based FIT for solar PV.
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Key differences b/w US & EU FITs
1: Most US FITs are tied to avoided cost (LMP, MPR, etc.) rather than based on levelized RE costs
2: US FITs impose a number of caps: - project size caps
- program size caps- total cost caps- caps based on green power participant base, etc.
3. FIT payments in the US are not differentiated by technology type, project size, or resource quality
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EU Research Findings
- FITs are more effective at stimulating domestic job creation than other RE policies
- FITs are not costlier than competitive solicitations
- FITs are lower risk (and lower cost) than tradable REC markets
- FITs create more dynamic RE markets with more rapid RE growth
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EU Research FindingsCountries with FITs:
1. have highest RE deployment effectiveness
2. have highest and most dramatic job creation growth, and the highest economic benefits tied to industry, manufacturing, and service sector development
3. have counter-intuitively delivered lower cost RE generation than countries employing “competitive” policies like the RPS & RO in the UK
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How can FITs help meet US State goals?
1. Job creation (both up & downstream)2. Meeting RPS targets3. Fossil fuel price hedge 4. Stimulate rapid market growth in RE5. Foster cost-efficient RE development6. Target distributed generation7. Diversify energy supply8. GHG reductions9. Foster local ownership (greater
economic benefits)
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Potential Impacts on State Drivers
State Policy Drivers
Specific State Policy Objectives
FIT PolicyImpacts Notes
Economic Objectives
- Job creation & Econ. Dev.- Stabilize electricity prices- Grow the state economy- Revitalize rural areas- Attract new investment-Develop community ownership- Develop future export opportunities
-High-High-High-Moderate-High-High-High
-FITs have been highly successful at driving economic development and job creation -Fixed contracts for RE can also help stabilize electricity rates
EnvironmentalObjectives
- Clean air benefits (SOx, NOx, Mercury, Particulates, etc.)- GHG emissions reductions- Preserve env. sensitive areas- Minimize impacts of energy dev.- Manage waste streams (biogas, landfill gas, biomass, ag. & forestry, etc.)- Reduce exposure to carbon legislation
-Moderate
-Moderate-Low-Moderate- High
-Moderate
-FITs have helped reduce the env. impacts of electricity generation-Differentiating FIT payments by resource type can also target various bio-waste streams.
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Potential Impacts on State Drivers
State Policy Drivers
Specific State Policy Objectives
FIT Policy
ImpactsNotes
Energy Security
Objectives
- Secure abundant future energy supply- Reducing long-term price volatility- Reduce dependence on natural gas- Promote a more resilient electricity system
- High
- High
-Moderate
-High
- Well-designed FITs can improve overall energy security by helping diversify energy supply sources
Renewable Energy
Objectives
- Rapid RE Deployment- Meet RPS targets- Reduce fossil fuel consumption- Provide base-load generation- Stimulate green energy economy
-High-High-Moderate
-Moderate
-High
- FITs a jurisdiction meet RE targets.- FITs have also been successful in helping countries like Germany move toward a green energy economy.
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How to implement a FIT in the US?
- Introduce as an alternative procurement mechanism to RFPs to meet RPS targets
- Establish clear interconnection standards to streamline access and reduce administrative barriers
- Consider interactions with existing state & federal policies (ITC, PTC, MACRS, etc.)
- Address any legal and/or regulatory barriers to RE
- Consider local context and resource availability
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FIT Best Practices
1. Payments based on the cost of generation Gainesville’s FIT is so far the only FIT in the US to be
based on RE development costs
2. Purchase guarantee (must-take provision)
3. Marginal costs integrated into the rate base (i.e. not via green power programs, treasury, etc.)
4. Payments differentiated by technology type, project size, location, and resource quality
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FIT Best Practices
5. Contracts should be based on lifetime of the project (secures the hedge benefit and lowers financing costs)
6. Policy stability is as important as price stability to investors
7. Clear interconnection standards and cost allocation procedures (e.g. for T&D upgrades)
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FITs in the Financial Crisis
In the midst of the financial crisis, FITs can help get RE projects financed and stimulate jobs:- US is down to four (4) tax equity investors- FITs facilitate debt financing
Reduce dependence on tax equity- FITs facilitate project financing through
price security- Proven mechanism to create jobs and
stimulate new industries- Help leverage capital investment from a
wider variety of investors, including untapped local capital
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Coming Soon…
NREL Report on FIT Policy Design:
“Feed-in Tariff Policy Design and Implementation: Best Practices Guide” NREL, 2009