Feed-in Tariffs: In the US - The Proven Road NOT Taken…Why?
America needs to introduce a nationwide feed-in tariff (FIT) to kick-start the renewable industry, restore America's leadership role, and accelerate the expansion of the renewable industry worldwide.
Why is a FIT critical?
Current world energy use is approximately 16 trillion terawatts (TW) per year. According to the BP Statistical Review of World Energy 2008, the amount of direct solar energy that arrives on Earth during an average four-week period is roughly 1,853 TW/yrs., which is greater than the total remaining reserves (1,755TW/yrs.) of all fossil fuels. The numbers speak for themselves and the technically feasible (at this time), long-term solution is renewables.
Given the overwhelming supply advantage and renewable nature of solar energy, we should accelerate the worldwide development of renewables as quickly as possible with a nationwide FIT.
What is a FIT?
A FIT is a policy mechanism designed to accelerate investment in renewable energy technologies. Producers of renewable energy are paid a set rate for the electricity they produce, usually differentiated according to the technology used (wind, solar, biomass, etc.) and the size of the installation. It achieves this by offering long-term contracts to renewable energy producers, typically based on the generation cost of each of the different technologies.
For example, if a PV system is installed on a home in Germany it would initiate a FIT program. This creates a reciprocal energy agreement with your utility — the utility would buy the power you produce at whatever the FIT rate was at the time of the agreement for a period of 20 years. You then buy any additional power (mostly at night) from the utility. Since the FIT price is higher than the retail power price, this arrangement allows you to get a stable return on your investment and makes any borrowing of money very easy.
Why do we need to implement a FIT, and what are the benefits of a FIT program?
FITs proven and working worldwide
FITs must be carefully designed in order to work effectively. Germany has a 10-year-old model others can reference, and 35 models have been based from it worldwide. Some countries have designed their FITs successfully, and some have not. However the U.S. can learn much from these successes and failures. The most recent, closest and successful of these FIT programs is in the province of Ontario, Canada.
FITs are not theories, nor are they the next Solyndra.
Opposition to FITs: Opposition is talk, FITs are fact
FITs major opponent is the local electric utility. These utilities argue that FITs work contrary to the market, but most utilities are not market-driven. They are monopolies — monopolies do not respond to market forces. As history has shown, the last thing a monopoly wants is competition in the market. But if one looks at FIT results, especially in another developed country like Germany, the numbers speak for themselves. FITs are far more market-oriented than monopolies.
There is a lack of political courage to try something new or allow something that powerful contributors (utilities, fossil fuel companies) do not want to infringe on their businesses and help kick-start a competing industry.
Why is it working in Germany and not in the U.S.?
The primary reason FIT’s are working in Germany and not in the U.S. is the respective mindsets in each of the countries.
Here are two quotes from Willi Voigt, former minister of the German state of Schlexwig-Holsteim, one of the early adopters of FITs.
“We decided we will reduce the CO2 until 2020, 40 percent, [and by] 2050 by 80 percent. Then we debated the instruments that could make this possible and decided on feed-in tariffs.”
“I hear arguments (spoken in 2009) we discussed in Germany 10 or 15 years ago. It’s the same debate. In Germany, we made a decision; we made a law….the renewable Energy Resources Act (FIT). It worked. You can see the results.”
Complacency is always a barrier to change. Just as the captain and crew of the Titanic became complacent when the ship was deemed “unsinkable,” we must not become complacent and ignore what is transparent, proven and obvious: feed-in tariffs.
Interesting “coincidence” in China
In closing, I think it is interesting to note that in 2006 China avoided implementing a FIT because “FITs trigger such rapid market growth,” according to an unnamed Chinese official. I would certainly view this as a compliment to the effectiveness of a well-designed FIT. Perhaps the Chinese realized that their solar manufacturing base was not in place to address this potentially explosive market?
In 2011 the Chinese implemented a FIT program, their domestic market is now booming and coincidently, Chinese solar manufacturing has scaled up to the point where they can address this huge market without the help of imports. According to the Global Trade Atlas, in 2006 China was 12 percent of the world export (12 percent of 20.3 billion = $2.4 billion), and in 2010 they were 33 percent of the world export market (33 percent of 76.1 billion = 25 billion). In reality, since the prices were much lower in 2010 the unit volume growth was far more than five-fold.