Solar Power In America: Feed-In Tarriffs Will Accelerate
September 7th, 2009I am involved in the Solar industry through my company. I sit on the PV Group industry steeering committee for SEMI, the semiconductor industry association which sponsors a solar manufacturing section. It is with interest that I have observed almost every country in the world promote the use of solar energy and foster that use through incentive programs to overcome the low cost of established fossil fueled electrical generation.
Feed-in tarriffs in Europe have been the key to widespread and rapid adoption of solar energy on homes, businesses and utility-scaled projects. American policy makers have rejected this type of incentive as “anti-free-market”. Until now. It seems we are on the edge of significant Federal, State and Local programs to implement feed-in tarriffs on a broad scale. Once that occurs, the fortunes of solar product companies like First Solar (FSLR), Evergreen (ESLR), and Applied Materials (AMAT) will increase commensurately. TAN, an ETF, is maybe the best way to play this coming electrical revolution.
Solar power manufacturing has traded in direct relation to oil and coal, the alternate fuels. When the global economy broke down in late 2008, so did solar. As oil has rebounded in 2009, so has solar. Solar will become more attractive as alternate fuels cost more over the coming years. But it is important for America to get in front of the oil cost wave that is fast approaching. Here is Dan Martin’s article first posted on the “Solar Feed” blog:
While significant progress has been made in government funding and support of solar power in the United States, the most effective renewable energy policy and solar incentive available?the feed-in tariff?has yet to receive major attention outside of the Europe Union.
Photovoltaic (PV) energy conversion is based on semiconductor technology, and the experience of the last decades has shown that the cost of PV electricity is reduced by 20% with each doubling of the total installed volume. Thus, it is necessary to design market incentives that allow for a rapid increase of the market size in order to quickly reach production volumes with the accompanying cost reductions to first reach parity with household electricity rates, and later with production costs of fossil and nuclear energy.
The feed-in tariff, or FIT, has proven to be a powerful tool to create managed economic incentives that yield meaningful results in system deployments, job creation, cost reduction, and market development–yet many policy makers, especially in the US, continue to rely upon renewable portfolio standards, investment tax credits, low interest loan guarantees, and other mechanisms to reduce fossil fuel dependency. The solar industry in the US should take pride in achieving recent legislative and funding victories, but also must recognize the powerful role that FITs can bring to rational and responsible energy policy.
Simply speaking, a capless FIT offers any producer of solar power a pre-determined rate for any kWh of electricity produced, regardless of the own consumption. If this rate is guaranteed for e.g. 20 years, and set in order to allow a decent return on investment for the owner of the system, it mobilizes powerful market forces towards rapid implementation of growing amounts of solar energy.
The German Solar Miracle
FITs are the highly effective policy engine behind the German solar miracle. Recognizing that return-on-investment is the principle barrier to wider market penetration for renewable energy alternatives (not lowering up-front costs), German policy makers required utilities to pay a rate of between ?0.35/kWh and ?0.47/kWh for solar electricity from newly installed PV systems. The German FIT program authorizes the utilities to pass on this extra cost, spread equally, to all electricity consumers through their electricity bill. In this way, the feed-in program works through market incentives independent of government budgets and subsidies.
In Germany, the monthly extra cost per household due to the feed-in rates for solar electricity is estimated at less than ?1.25 in 2008. The result is that every electricity consumer contributes to the restructuring of the national electricity supply network. Equally important, by assuring a rate of return over a sufficient period of time, the German FIT has proven to be an excellent accelerator for private financing. To encourage cost reduction and the eventual elimination of tariffs, the feed-in rate in Germany is reduced each year by 5% (increased to 8 -10 % starting 2009), but only for newly-installed PV systems. Once a PV system is connected to the grid, the guaranteed feed-in rate remains constant over a 20-year period. This approach allows solar customers to easily calculate the return on investment in their PV system, while exerting price pressure on the industry to continuously reduce costs to remain in the market.
A remarkable feature of a FIT is the built-in sunset clause: With the annual degression of the feed-in rate offered to new customers this rate will in only a few years dip below the rate of household electricity, and later compete with conventional power. Thus, the financial burden on today?s rate payers remains limited, and it provides the basis for more stable energy prices in the future, based on a larger fraction of secure, domestically produced electricity.
Spain?s FIT
FITs have been implemented throughout the world with enormously successful results. In Spain?s widely-reported experience, nearly 3 GW in 2008 of solar power projects were deployed last year after generous tariffs were adopted. The result was that Spain briefly became the largest solar power market on the world, adding more than 45% of the world?s new installations and three times more than analysts expected. Today, in response to the impact on utility rate payers, Spain has capped its FIT at 500 MW, an amount still larger than all newly installed systems the in the US last year. While Spain?s FIT is often cited as what not to do in solar policy, and this is partly true, the case clearly demonstrates the effectiveness of FITs to quickly establish a viable solar market.
Part of the confusion and controversy surrounding feed-in tariff is the wide variety of incentive schemes proposed and implemented across the world. In addition to the German example, classic tariffs or premium pricing schemes can be used; FITs can be technology targeted or neutral; capped or uncapped; generation cost based or value based.
FITs Enacted in ROW
FITs have been enacted with varying degrees of success in Australia, Brazil, Greece, Portugal, Korea, Singapore, and in some states in the US. South Korea adopted feed-in tariffs for solar PV in 2006 that distinguishes between systems >30kWp and systems