Is a Feed-In Tariff a good FIT for the U.S.?
June 22nd, 2009 by Jennifer Kho
As U.S. policymakers debate the best renewable policy for the country, many German experts are already convinced they know the answer: a feed-in tariff. Germany’s feed-in tariff, which offers generous set prices for renewable electricity fed into the grid, stimulated 1.5 gigawatts of new solar capacity last year, and similar programs also have boosted markets in countries such as Spain, Greece, Italy, Turkey and South Korea. All the fastest-growing solar markets in the world today have feed-in tariffs.
Gainesville, Fla., and Ontario, Canada, also recently created German-style feed-in tariffs, but the policy hasn’t yet taken hold as a U.S. state or federal policy. I recently wrote a post for Earth2Tech about the difficulties of implementing a German-style feed-in tariff in California: the policy isn’t responsive to market signals that would encourage electricity generation when and where it’s most needed, it’s more challenging to make work in places with lower conventional electricity prices and widely varying utilities with different restrictions, and it doesn’t address retail electricity or encourage customers to use less energy.
The policy certainly hasn’t been an unqualified success. Take the Spanish solar fiasco. The Spanish program has been blamed for dramatically growing, then crushing, its solar market, helping to create a worldwide oversupply of panels and falling prices. The country capped its tariff program to 500 megawatts this year — after installing 2.5 gigawatts of new capacity last year – to limit the cost of its program. And Adam Browning, executive director of solar advocacy group Vote Solar, also said “there’s no question” that the high price for solar in Germany led to much higher prices for panels worldwide.
But so far, there’s no question that a German-style feed-in tariff has been the most effective renewable-energy policy in the world, said Gerhard Stryi-Hipp, head of energy policy for the Fraunhofer-Institute for Solar Energy Systems, at a solar luncheon last week in advance of the Intersolar conference next month. For comparison, the U.S. would need 6 gigawatts of annual solar installations, 20 times more than it has today, to reach the same level of market penetration, he said.
The idea behind Germany’s program was that it would increase solar volumes so that costs could come down – as they are now – and so that solar could eventually become price-competitive with conventional electricity, Stryi-Hipp said. “The volume matters,” he said. “This is the reason why we went to the feed-in tariff. It created the framework to quickly grow the market.”
Stryi-Hipp acknowledges that conditions are very different in California – and in the United States overall – than in Germany, with fewer variations in cost, peak demand and legal restrictions among the different utilities. But he still thinks a feed-in tariff should be part of the discussion. “We know that, worldwide, feed-in tariffs are the most efficient and powerful [tools] to develop renewable-energy markets,” Stryi-Hipp said. “For sure, I don’t want to say it’s the best instrumentation for California, but in other countries, we know it’s been very successful. … It could be helpful to take the feed-in tariff into account as a possibility.”
After all, none of the U.S. policies so far has brought the country to its potential, he said, adding that the country clearly needs to do more. “I would be happy if we could achieve 1 to 3 gigawatts [of annual new solar capacity] in the United States with the instrumentation you already have,” he said. “But [at least so far,] we’ve found it’s not growing as fast as it should.”
Others, including Sue Kateley, executive director of the California Solar Energy Industry Association, say they would like to see a combination of different programs in California, including a retail-electricity program to help consumers reduce on-site demand, a utility-scale program and a wholesale-electricity program like a feed-in tariff. “There’s a big advantage in designing a program to do different things, instead of just having one large policy-controlled market,” Browning said.
In fact, California is now considering a wholesale program, Browning said. Meanwhile, Germany has changed its policy to allow solar customers to use the electricity they generate first, before feeding it into the grid, and to get a bonus for generating that retail electricity, Stryi-Hipp said. “We’re seeing some convergence,” Browning said.
Image courtesy of bananawacky via a Flickr Creative Commons license.
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About the Author
Jennifer Kho -- With more than nine years of reporting experience, Jennifer Kho has been covering green technology since 2004, when she started the cleantech beat at Red Herring magazine. She wrote for Red Herring until 2007, when she helped launch the Greentech Media site as its founding editor. She left Greentech Media in November. Her stories have appeared in such publications as The Wall Street Journal, the Los Angeles Times, and TheStreet.com. She also regularly contributes to Earth2Tech.
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