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Solar News

The Invasion of the Feed In Tariffs


July 21, 2009
By: Daniel Maysick

Solar installation in the United States still lags behind nations in Europe despite a recent flurry of federal and state tax credits. Despite government tax credits, the price of installing solar panels remains out of reach of most consumers. More creative means are needed to stimulate demand. More creative means are needed to make solar more affordable. America is now looking to Europe for guidance.

A successful program in Europe is the feed in tariff. A feed in tariff is a payment structure requiring utilities to buy electricity produced through renewable sources at above market rates. A feed in tariff stimulates the installation of solar panels by increasing the pay offs. The program has had immense success in Germany so much so that Germany has reached its renewable energy targets early.

While a national feed in tariff may not yet have enough support in Congress, local municipalities aren't waiting for the federal government. Earlier this year Gainesville, Florida became the first city to implement a feed in tariff program writes the New York Times Kate Galbraith.

"This month Gainesville, Fla., became the first city in the United States to introduce higher payments for solar power, which is otherwise too expensive for many families or businesses to install. City leaders, who control their electric utility, unanimously approved the policy after studying Germany's solar-power expansion.

"It shifts the burden of subsidizing green energy from taxpayers, as is common in the United States, to electricity ratepayers. And the technique includes assurances that a utility will pay the high rates for a long period, often 15 to 25 years."

The program in its first month has witnessed success. A few days after beginning operation the utility had reached its cap for the year and for 2010. The increased cost of buying the renewable electricity is spread around customers using traditionally supplied electricity.

Feed in tariffs work because they change the incentive structure. Nearly all current incentive structures favor large and expensive set ups. These capital intensive ventures favor companies with capital to spend. These are also the same corporations and associations that lobby Congress.

Mariah Blake explains in the Washington Monthly why the feed in tariffs will work .

"To understand why feed-in tariffs are potentially revolutionary, you first have to understand how they differ from the system we've been using to drive investment in renewable energy so far. For the last fifteen years, the United States has relied on a patchwork of state subsidies and federal tax breaks-mostly production tax credits for wind power, which let investors take write-offs for the energy produced. When Wall Street was riding high on mortgage-backed securities, this made green energy an appealing option for big banks, which funneled billions of dollars into sprawling wind farms as a way of lowering their taxes. But when the market collapsed and corporate profits dried up, so did the incentive to invest. Since last year, the number of tax equity investors-mainly big investment banks-sinking money into wind farms has dwindled from as many as eighteen to four, and the remaining players have scaled back.

"This tax-based system has other drawbacks as well. Because Congress has to renew the tax credits-and has often failed to do so-renewable energy is a risky market. Frenzied bursts of investment are followed by near-total collapse, a pattern that has hampered the growth of our domestic green manufacturing sector. Also, tax incentives (and the quota systems in place in about half of U.S. states) end up favoring large-scale projects, mostly monster wind farms concentrated in remote places like the Texas panhandle. This has been lucrative for the companies, like GE and Siemens, that build them, but of limited economic benefit to local communities. What's more, a lot of energy is wasted transporting power from the sparsely populated areas where it's produced to the cities and coasts-assuming it can be transported at all. Transmission lines are in such short supply that turbines (and occasionally entire wind farms) sometimes have to be shut down because of bottlenecks in the grid.

"Feed-in tariffs promise to solve many of these problems by encouraging small, local production, driven not by Wall Street banks but by ordinary entrepreneurs-a system that boosts efficiency and fortifies local economies."

Furthermore, these feed in tariffs can be tweaked. Germany reduces the rate each year for feed in tariffs increasing the incentive to get in the market now. Feed in tariffs also stabilize the market place by locking rates in for many years and not waiting on Congress to renew programs or other legislation.

Oh, Yeah. just listed another utility that is adopting a feed in tariff program.

"The Sacramento Municipal Utility District (SMUD), the nation's sixth largest publicly owned utility, has established a feed-in tariff (FIT) that will help the company buy electricity that is fed into its distribution system from eligible generation units at customer sites."

Feed in tariffs play to the entrepreneurship of individual citizens. Stay aware of progress of programs in your community. Uncle Sam isn't leading the way this time.