Feed-in Tariffs Critical for New Affordable Clean Energy Policy

SEMI photovoltaics (PV) Group recently released a market analysis report on solar feed-in tariffs,which was published to promote understanding of public policy bestpractices for the development of solar energy.

In general, feed-intariffs are critical for the implementation of new affordable clean energy policy across the globe without a major hike in energy prices. Renewable feed-in tariffs are a policy mechanism designed to encouragethe adoption of renewable energy sources. They typically include threekey provisions: 1) guaranteed power gridaccess, 2) long-term contracts for the electricity produced, and 3)purchase prices that are based on the cost of renewable energygeneration. In other words, the difference in cost of adding renewableenergy sources over a cheaper conventional coal or natural gas plant isdistributed among the customer base at a nominal rate. Under a feed-intariff, an obligation is imposed on regional or national electricityutilities to buy electricity derived from clean, renewable resourcesfrom all eligible participants in the market.

The PV Group supports the development of feed-in tariffs around theworld as the most effective means to ensure sustained growth for the PVindustry without a significant burden on consumers; however, there arean array of other competitive solar integration policies globally.Nonetheless, feed-in tariffs have fueled the rapid PV market growth inEurope over recent years and are also flexible, since they can beintegrated with existing polices such as rebates, renewable portfolio standards, tradable renewable energy carbon credits, net metering, and tax credits.

The public policy principles that the PV Group emphasized in their free White Paperincludes: stable and predictable policies to encourage privateinvestment; transparent and streamlined policies to promote fair andhonest outcomes; and open and accessible policies to enable distributedenergy production. Best practices encouraged by the White Paperinclude: support for technology differentiation in terms of design and efficiency,generation cost-based rates, fair purchase and interconnectionrequirements, use of fixed-price and long-term payment agreements. Over40 different feed-in tariff policies are in effect globally; thus, thisWhite Paper is beneficial for comparing and contrasting best practicesin order to guide the most effective future policy decisions.

According to PV Group, nearly 80 percent of the world’s solar demand isprovided by FIT-supported policies. Feed-in tariffs have becomepreferred tools in the solar space, since they offer the followingbenefits: a pay-as-you-go usage program per kilowatt-hour, notsubsidized by taxpayers, and compatibility with other renewable energy policies.The ability of feed-in tariffs to attract low-cost capital from a widerange of different investor types has become even more critical duringthe ongoing shortage of available bank credit to businesses. Eventhough there are approximately 40 different FIT policies across theworld, a global feed-in tariff system has not been fully supportedacross the clean energy industry,but many feel that national feed-in tariffs are the ideal solution,which should be customized to the specific needs and technology optionsfor a particular country. For instance, a concentrating solar power (CSP) feed-in strategy for a South American country may not be useful or relevant to a geothermal policy in Japan.

Feed-in tariffs may also help enable the The European Union EnergyCouncil in meeting its new Energy Performance of Buildings Directive(EPBD) requiring all buildings to be essentially energy neutral by2020, which means that a high percentage of energy consumption in new buildings will require renewable energy. This effort is a major victory for the green building movement, while this policy is more aggressive than the U.S. mandatefor a reduction in federal government building energy consumption by 30percent by 2015 with respect to 2003 levels and the requirement for 25percent of its energy consumed to be generated by clean, renewableenergy by 2025.

Solar PV panel systems and solar thermal technologies are some of thebest options for integration into buildings, and companies withpre-existing market share have the most to gain. However, no target hasbeen set for existing buildings in Europe, which currently representabout 99 percent of the landscape. In any case, this policy will helpformulate more of a continental uniformity in the solar market overtime, which has been segmented in recent years based on nationalfeed-in tariffs in countries such as Spain and Germany, which becamehotbeds for solar installations that attracted the whole supply chain as well, whereas other countries without solar incentives stood idle in the field.

The European Photovoltaic Industry Association (EPIA) has supported the mandate for energy neutralityand has offered recommendations to individual EU nations onimplementing the directive. In specific, this organization isadvocating for decentralized renewable energy sources, which wouldfavor solar panel installations on the buildings themselves rather thanthe purchase of power from existing or planned central stationrenewable energy projects such as: solar and wind farms, CSP facilities,and geothermal and biomass plants. The EPIA reasoning in this matter isbased on creating more energy-independent building entities that maypossibly even become autonomous or positive energy buildings, which areones that supply energy back to the grid. Ultimately, geography andregional pricing will play a role in how the policy is implementedacross Europe since sun-intensive regions of Europe such as southernSpain and Italy will be more advantageous for CSP or solar thermalplants supplied by  a company such as Solana or Abengoa, which happen to be building facilities in the Arizona desert, over localized solar installations.

This new piece of legislation will be essential in meeting the targetset by the EPIA to supply 12 percent of Europe’s electricity demand forits 27 EU countries by 2020 with solar energy. Europe’s experience withadvanced renewable energy policy integration such as feed-in tariffswill be beneficial in implementing this measure. If the U.S. enacts cap-and-trade legislationwith an accompanying renewable energy portfolio standard, possibly inresponse to COP15 Copenhagen Climate Change Conference initiatives,feed-in tariffs may become more pervasive in this country as well.

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