#feedintariffs

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On Feed-in Tariffs

The Renewable Standard Portfolio is one of the most well known policy initiatives at the state level to improve renewable energy production. Yet RSPs are not what has lead Spain and Germany to become the solar capitals that they are. In Germany, 3% of electricity comes from solar (it constitutes 0.11% in the US) and 2.7% of electricity in Spain (as of 2010).

 What has been behind the incredible ramp-up in renewable electricity generation throughout Europe? Feed-in tariffs (FiT’s).

Feed-in tariffs are a little more complicated than RSPs and have quite a bit of variation amongst themselves but here’s the gist. The government sets a price for producing electricity from different sources, say $0.20/kWh for wind and $0.30/kWh for solar. Price can also differ based on project size and other factors. Private companies then build renewable power plants. This electricity is then sold to the utilities, which promise connection to the grid as well as a 10-20 year guarantee on the price. Sometimes this price is a flat number throughout the life of the power plant. Other times it is a premium over other electricity generation sources.

I’m going to go through FiT policy over the course of several posts in the next few weeks. There are a lot of options to consider and ways to implement this policy. Different policies will be better suited to certain places.

On the broad scale, feed-in tariffs have quite a few advantages over RSPs, especially in the current political climate of the US.

The largest opponents of renewable electricity in the United States tend to be conservative Republicans who see this as a pointlessly expensive luxury. Many of these same people are not convinced of the effects of greenhouse gas emissions on the climate.

In order to gain the favor of those on the political right of center, other arguments must be made. Renewable standard portfolios are top down government policy that creates mandates but offers little actual incentive. Messaging for FiT’s can be quite different. These policies are more business oriented, disrupting the monopolies of the large utilities and creating a more competitive market economy for electricity. There is definitely a share of government subsidy involved (or increased cost to utility customers depending on how the policy is implemented) but this can also reduce costs thanks to market forces and competing firms. These are arguments that typical enemies of renewable electricity can support somewhat more than RSPs and big government.

Furthermore, FiT’s are more distributed and make for excellent policy in states with more rural populations. Due to this distributed model, communities with little chance of receiving large investments of electricity generation may see smaller investments, helping create more defenders in a state legislature concerned with jobs more than climate change and environmental impact. 

RSP’s are a partisan issue. Essentially, unless there is a state like California where one side of the aisle has a great deal of control or environmental issues are important to both sides of the aisle, a new RSP is dead in the water, especially as many states are only starting to feel more secure financially after the great recession. FiT’s are not yet on the public mind. Rush Limbaugh has not mentioned them. President Obama hasn’t taken a stand. Mitt Romney probably doesn’t have a clue what they are. When an issue isn’t already partisan, much more work can be done.