Feed-In Tariffs

Solar Programs and Policy Support

Financial Incentives

Although not yet used in the U.S., an effective mechanism to ensure long-term solar financing is a feed-in law. A feed-in law is a price-based policy that specifies the price to be paid for renewable energy. Feed-in laws guarantee a solar generator a guaranteed power sales price (i.e., a feed-in tariff), coupled with a purchase obligation by electric utilities. Feed-in laws are popular in many European countries as an effective way to stimulate expansion of the renewable energy sector, with impressive results in project deployment. A feed-in law can both stimulate the development of a local renewable industry as well as generate a large number of project installations.

A successful feed-in policy includes design features that eliminate risk to potential renewable investors, including long-term contracts, guaranteed buyers, and a price that offers a reasonable rate of return for the system owner. Feed-in laws reduce transaction costs and minimize any perceived risk, making investments and financing in solar projects very attractive to the investment community. A solar project that receives a long- term feed-in tariff agreement from a utility company can readily obtain loans that are secured by these agreements. CEG recommends that states consider adopting feed-in laws to establish a mechanism for such long-term agreements and financing.

Criteria for a successful feed-in tariff program are:

Ensure the tariffs are high enough to cover costs and encourage development
Ensure regular adjustments of tariffs to track changes in technology costs
Guarantee tariffs for a sufficient time period to ensure a high enough rate of return
Eliminate barriers to grid connection
Establish tariffs according to each particular technology type with input from the renewables industry

The Ontario Power Authority recently established a standard offer program for small electricity generators (capacity of less than 10 MW; 20 year contracts) in the Province, including solar PV, which may serve as a useful model for states for establishing an effective feed-in regime, simplified eligibility, and contracting rules. See http://www.powerauthority.on.ca/Page.asp?PageID=1224&SiteNodeID=245

Recently, the state of California established new feed-in tariffs. On February 14, 2008, the California Public Utilities Commission made new feed-in tariffs available for the purchase of up to 480 MW of renewable generating capacity from small facilities throughout California. These "feed-in tariffs" present a simple mechanism for small renewable generators to sell power to the utility at predefined terms and conditions, without contract negotiations.

The CPUC expects that participating small facilities will sell their renewable power to utilities and help contribute to California’s ambitious climate mitigation and renewable energy goals. The power that is sold to the utilities under the feed-in tariffs will contribute to the utilities ability to meet their Renewable Portfolio Standard goals.

See http://www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/feedintariffs.htm for details of the new feed in tariff program.

For more information, please see the following:

The Debate over Fixed Price Incentives for Renewable Electricity in Europe and the United States: Fallout and Future Directions, by Wilson Rickerson and Robert Grace, February 2007, A White Paper prepared for the Heinrich Böll Foundation.

Evaluation of Different Feed-in Tariff Design Options: Best Practice paper for the International Feed-in Cooperation, by Arne Klein, Anne Held, Mario Ragwitz, Gustave Resch, Thomas Faber, 2006. A research project funded by the German Ministry for the Environment, Nature Conservation and Nuclear Safety.