Feed-in Tariffs the Legal Way

Paul Gipe runs a popular web site known as Wind-Works, which covers a spectrum of subjects on wind power — technical, regulatory, policy-related, etc.  Paul has allowed us to republish an article from his site that deals with the legal aspects of establishing feed-in tariffs (FiTs) for renewable energy — solar as well as wind — in the USA.

Normally we find legal stories, unless they concern Horace Rumpole or Judge Roy Bean, to be invaluable sleep aids.  In this case, however, the story addresses an important concern for the future of renewables in America.  It’s worth learning how FiTs can be used here, within our legal framework, to accelerate solar deployment in our country.  It’s information that you may want to use if you’re pressing your municipality, utility or state utility commission to implement this kind of system.

The Skinny on  FiTs

An FiT system, in short, is one in which customer-generators are paid a premium rate for dispatching energy from approved sources (small wind, rooftop solar, etc.) into the grid.  The Utility may recover this cost by levying a charge on all its customers, or a pool of money may be made available by the government to top up the rate.  The tariff may vary depending on the technology, the region, and installation size, and may decrement over a lengthy period such as twenty years.  Part of the tariff-setting rationale is to make it more financially attractive to participate at an early stage of the program, which leads to the rapid deployment of large amounts of clean energy generation.

FiTs, while not the object of universal approval here, have indeed often led to massive numbers of solar installations in countries that employ them, such as Germany and Spain. It helps, of course, if a nation’s laws allow it to dictate what utilities must buy, and at what price, from customer-generators.  The fact that we have a more straitened relationship with our power providers means that the FiT regime here is restricted to those states and municipalities that have introduced their own versions: Vermont, Washington, Gainesville, FL and Sacramento, CA. The legislation is also under consideration in Indiana, Hawaii, Wisconsin and Maine, and California has recently revamped its poorly-considered FiT to make it more attractive to users.

The Legal Stuff
The legal analysis, issued last month by the National Renewable Energy Laboratory, makes the point that the European or Canadian approach of setting specific tariffs directly won’t comply with the current interpretation of federal law.  There are, however, two ways of achieving compliance:

1) If a tariff can be based on ‘avoided cost’ (the Utility’s cost to generate a given unit of energy) plus top-up payments from Renewable Energy Certificates or Credits, cash subsidies or Utility tax credits, this could provide a sufficient incentive for customer-generators while remaining within the law established by the Public Utility Regulatory Policies Act (PURPA) of 1978.

2) If the Federal Energy Regulatory Commission were to grant exemptions from PURPA regulations for installations smaller than 20 MW, small-scale customer-generators in states that applied for the exemptions might be able to sell their power at a reasonable return without having to plow their way through onerous PURPA regulations designed for large power producers.

Bad Attitude

What’s missing from what we can charitably here call ‘work-arounds’ is the philosophy that renewable energy is a benefit rather than a burden to the system.  As Paul Gipe puts it, “Such an approach treats renewable energy differently than utility-owned conventional generation that is put into the rate base. It treats renewables as a cost to the system and to ratepayers, not as an integral part of the utility system as in Ontario and Germany.”

Why is this legal ‘nicety’ so important? It’s because, whether or not FiTs are the optimal fiscal regime for clean energy in this country, until we start to see clean energy not as a hindrance but as beneficial in terms of the economy, national security, jobs and a stabilized climate, we will be left further behind the curve being drawn by much of the rest of the world.  And there may be no ‘come from behind’ victory for us.

Paul Gipe’s article, with a link to the NREL analysis, can be found here.