Articles / Bringing Clean Energy to Your Town: FIT Programs

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The sun shines often on Florida, a fact that gave it bragging rights on license plates with the nickname, the “Sunshine State.” The northern city of Gainesville rubs it in even further with its local newspaper, The Gainesville Sun. With all those sunny days, solar energy seemed like a good idea to Ed Regan, who designed a feed-in tariff program for the utility company.

To bring the city's power portfolio up to the standards of the Kyoto Protocol, Regan designed a program that would pay people fixed, premium rates for solar power that they produce. The city began the program in March 2009 and since then solar power has grown nearly 600 percent—from 350kilowatts (kW) to more than 2,000kW now.

The measure has created new jobs both in solar panel installation and maintenance and for entrepreneurs who built banks of panels in open areas as small-scale solar power plants. Also, energy bills have only risen .25 percent, Regan said.

“It was the first time I did a rate increase without a lot of complaints,” he said. “I would consider it a tremendous success.” He warned, however, that solar is one of the most expensive energies and without subsidies like tax breaks, for example, it may not be a viable option for every utility company.

“If you want to get a lot of solar quickly, this is a good policy. It makes a lot more sense than cap and trade, because it takes the risk out of the investment,” he said.

Feed-in tariffs: making alternative energy investments profitable

“Feed-in tariffs” (called an “FIT” in industry jargon) began in Europe but are gaining a foothold among some state and local American governments with encouraging results. The idea is that the state requires utilities to pay premium rates for small renewable electricity generators. The sources could be solar panels on a homeowner's roof or a wind turbine in a cow pasture, for example. The owner is guaranteed a certain, high payment for each kilowatt-hour of electricity produced.

The European experience

Just how well FITs work is a hot debate among policy wonks in the European media. Countries like Germany, Denmark and Spain have implemented such laws with mixed success: They have added dozens or hundreds of megawatts (MW) of renewable energy to their power portfolios, but there's debate over whether FIT plans hike energy rates to unacceptable levels. And dissenters question the wisdom of some of the programs, such as those that promote expensive solar power in regions that are notoriously gloomy.

“FITs have proven to be a powerful deployment mechanism that can drive significant investment in renewables,” said Cai Steger, a clean-energy policy expert at the Center for Market Innovation, a division of the Natural Resources Defense Council. “However, with this power comes a need to be cautious in implementing new FITs,” he added. “A poorly implemented FIT can cause significant rate impacts without establishing a sustainable market and the complexity of designing such a policy should not be underestimated.”

Getting started in Sacramento

Gainesville, Florida may play up the “sunshine” nickname, but the Golden State of California is also famously sunny. And solar energy could work there, as well. In February 2008, the state's utilities regulatory body made FITs available for the purchase of up to 480MW of renewable energy statewide.

The Sacramento Municipal Utility District, which powers Sacramento County, took the state measure a step further. In January, it began offering FITs for 33.5MW of energy to comply with its share of the state mandate and added 66.5MW for a total of 100MW of power in its jurisdiction.

So far, no contracts have been signed, but there are projects totaling 124MW (which surpasses the cap) on a waiting list pending approval. Installation should begin this year and go through 2012, a spokesperson for the utility said.

Sacramento's program is not only solar. It's also tweaked to allow biogas and combined-heat and power generators. Those are generators that burn fuels like natural gas, but then they use the heat they generate wherever they're installed, rather than letting it go to waste like it does in conventional generators.

FIT Law in Vermont

Vermont passed a practical FIT law in May 2009 that might be seen as a kind of energy experiment. The law requires contracts for up to 50MW of four kinds of alternative energy production. That's 12.5MW each for small solar, wind, hydropower and biomass generators.

Each type of generator receives a different rate per kilowatt hour (kWh), depending on the cost of production. Solar, the most expensive, receives 30 cents per kWh, while biomass, for example, receives 12 cents. In comparison, the state's large hydro and nuclear power stations produce electricity for 5-7 cents per kw-hour. So far, only one project has been approved: a 1.5MW solar farm. Others are in the pipeline.

“There was a desire to have an economically feasible solution, rather than focusing on just one technology,” said Stephen Wark at Vermont's Department of Public Service. “The question is, will providing these incentives at above market prices lead to the rapid build-out that the state wanted to see?” he asked. He figures that by December, they'll have an idea of how it's working.