Renewable Energy Feed-in Tariffs:
Lessons Learned from the U.S. and Abroad
VT Public Service Board
Feed-in Tariff Workshop
Karlynn Cory
SEAC Financing Team
Lead
July 10th, 2009
NREL is a national laboratory of the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy operated by the Alliance for Sustainable Energy, LLC
Agenda
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Feed-in Tariff (FIT) Overview
FIT Policy Best Practices
Policy Design and Implementation Challenges
FIT Policy Misconceptions (PURPA, PBIs)
Policy Interactions (net metering, RPS)
FIT Policy Implementation (U.S. and VT)
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Feed-In-Tariff Definition
Feed-in Tariff (FIT)*: A renewable energy policy that
typically offers a guarantee of:
1. Payments to project owners for the total amount of
renewable electricity they produce;
2. Access to the grid; and
3. Stable, long-term contracts (15-20 years)
This revenue may pay for:
– Electricity sales, or
– Electricity sales + RECs (as in Vermont)
* Also called fixed-price policies, minimum price policies, standard offer
contracts, feed laws, renewable energy payments, renewable energy
dividends and advanced renewable tariffs.
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FIT Policy: Application in the U.S.
Note: Gainesville Regional Utilities, has approved the first U.S. cost-based FIT for solar PV.
In May 2009, Vermont enacted the first statewide FIT policy based on the RE project cost.
Palm Desert,
CA
(proposed)
Rhode
Island
(proposed)
Santa
Monica, CA
(proposed)
Los Angeles,
CA
(proposed)
Gainesville,
FL
(approved)
One state with enacted FIT legislation based on avoided cost (CA)
One state with enacted FIT legislation based on cost of generation (VT)
Three states with enacted utility-based FITs (OR, WA, WI)
Seven states (incl. 3 munis) with proposed RE cost-based FIT legislation
Source: Adapted from Gipe www.wind-works.org, NREL June 2009
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FIT Policy Best Practices – 1
1. Ensure the profitability of RE investments
– Often, the FIT payment is based on the RE project cost +
pre-determined rate of return
2. Long policy duration
– Length and reliability of the policy framework, over time
3. Include substantial FIT payment differentiation to
closely approximate a variety of RE project costs
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Technology;
Project size;
Resource quality (e.g. lower level for higher wind class); and
Other project-specific variables.
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FIT Policy Best Practices – 2
4. Long contract length – FIT payments awarded over longer
periods mean greater revenue certainty and lower required FIT
payments
5. Encourage efficiency and innovation – decrease payments
to projects that come on-line in subsequent years
6. Allow widespread participation
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Residential, nonprofit, commercial and industrial customers;
Federal, state and local government agencies;
Independent power producers; and
Utilities
7. Use caps sparingly – restrictive caps on project size, overall
program size or program annual budget can limit FIT policy
success.
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FIT Policy Challenges
Setting FIT payment level is challenging:
if set too low, little new RE development;
if too high, surplus profits to developers
Cost: supporting emerging technologies
can lead to near-term, upward pressure on elec. costs
Complexity: Usually many levels of differentiation
Policy design challenge: Tracking technological
improvement and cost reduction accurately over time
Policy crutch: RE industries could develop a reliance
upon the policy for project deployment
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Key differences: U.S. & EU
1. In general, U.S. FIT policies have not been based on the
cost of generation (plus a reasonable profit)
2. EU FIT policies can be used by everyone
- Res, Com & Ind customers
- Fed., state, local govt.
- Non-profit organizations
- AND utilities
3. U.S. FITs impose caps (e.g. project size, program capacity
or total cost) typically on an annual basis
- U.S.: focus tends to be on annual increment
- EU: longer-term goals/caps are set (10-20 years)
- Longer-term caps provide investor certainty
4. U.S. FITs have yet to fully differentiate FIT payments
- Different project costs based on technology, size of
project, quality of resource and other locational factors
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FIT Policies: Addressing Misconceptions
- FITs are not a “foreign” policy
- U.S. utilities get cost-recovery + profit for conventional gen.
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FITs are not the same as PURPA
FITs can be compatible/compliment RPS mandates/goals
All FITs are production-based, but not all PBIs are FITs
FIT policy design and administration will be different if
performed by states, as opposed to utilities
- FITs have different goals and structure than net metering
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PURPA: a FIT Policy Precursor
• Public Utilities Regulatory Policy Act (1978)
– Provided production-based payments to qualified non-utility
renewable energy generators
– Payments based on utility “avoided cost”
– EX: California’s standard offer contract No. 4
SOC No. 4:
contracts based on
utility projections of
long-run fossil fuel
prices
National Renewable Energy Laboratory
% of retail electricity
price FIT policies
Avoided cost-based FIT
policies
Undifferentiated FIT
policies
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Modern FITs, fully
differentiated, often
cost-based
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Feed-in Tariff vs. PURPA
FIT payments are distinctly different from PURPA
 PURPA payments to RE projects were anchored on erroneous
projections (oil-fired power on the margin; oil prices high)
 In reality, actual electricity prices diverged greatly from
forecasts (NG-fired power on the margin; lower fuel prices); but
PURPA payments remained high and continued to grow
 In contrast: successful FITs* are based on RE project
economics (plus reasonable return)
- Not usually tied to fossil fuel/electricity prices (some exceptions)
- Most often, payments are levelized (perhaps small escalator)
- Price hedge, if fixed payment (propsed in VT), or if a market/auction
premium payment bound with cap & floor
* Successful FIT: Results in substantial RE MW and GWh, quickly
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FITs and RPS: complimentary policies
- FITs replace/compliment competitive solicitations
(i.e. RFPs), NOT RPS policies (e.g. EU countries use
FITs to achieve goals)
- A FIT policy can be compatible with an RPS
mandate or goal
- Project financing support through ratepayer backing
- FITs can target DG (RFPs focus on utility-scale)
- FITs can be used for utility-scale between RFPs
- Hedge against project delays and cancellations
- Open to all end-users, including utilities
- Focus on “reasonable” cost RE (not least cost)
- Assured support for emerging technologies
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Feed-in Tariff vs. Production Incentives
 Production-based incentives (PBIs) are distinguished from
capacity-based incentives ($/W)
 All FITs are PBIs, but not all PBIs are FITs
 PBIs generally offer a per kWh payment without regard to
production costs
 Not always long-term, nor widely available
 VT FIT proposed to follow some FIT best practices
- They are targeted so that the revenue streams cover total
project costs, plus a reasonable return
- Offer long-term contracts offered over long period of time
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Feed-in Tariff vs. Utility Policies
 Important to distinguish between utility-based FIT
policies and state-based FIT policies
 PG&E, SCE, Xcel, MGE et al., all have “FITs”
- None are cost-based
- None are meant to stimulate large amounts of RE
- None are meant to create jobs
…but that’s not utilities’ role
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Feed-in Tariff: Net Metering vs. FIT
Net metering (NM) vs. FIT Policy Goals
 NM goal: credit customers with value of power to utility
 FIT goal: provide project owners with adequate project revenues
NM vs. FIT policy structure
 NM provides a credit for excess generation
 NM usually re-sets/zeros out at the end of the year
 NM policy success depends on ability to cover the cost of the
project (i.e. depends on NM policy details)
 FITs provide cash payment for the entire electrical output over a preestablished period of time
NM and FIT policy – comparison
 FIT provides greater revenue certainty (pre-determined P over L-T)
 NM granted at utility retail rate for up to 12 months (variable,
benefit credited to the utility after a year)
 While not a true FIT, could also consider using net metering in
combination with FIT payments (FIT payments make up difference
between system cost and utility retail rate)
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FITs in the Financial Crisis
- U.S. is down to ~ 4 tax equity investors (Jan ’09)
- FITs facilitate project financing through guaranteed,
long-term contract for output
- Help attract capital
- Can reduce dependence on tax equity
- Proven mechanism to stimulate new
industries, create jobs, if generous caps
- FITs provide the opportunity for
low-risk returns on local energy
investments
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Future U.S. FIT Policy
Best practices suggest that successful FITs :
1. are methodologically based on RE project
costs (+return)
2. are in place over a long period of time to
provide policy stability and reduce uncertainty
3. are differentiated by project size, resource
quality and technology type
4. involve long-term contracts (15-25 years)
5. include built-in decreased payments to drive
innovation and cost-reduction over time
6. are generally available to all end-users and
project investors
7. minimize the use of program and project caps
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How to implement a FIT in the U.S.?
- Make a long-term commitment to RE – enact the policy
for 10 or more years to provide policy stability
- Introduce as a procurement mechanism to meet RPS
mandates/goals (either supplement to RFPs – for DG or
between RFPs, or as a replacement for RFPs)
- Establish clear interconnection standards to streamline
access and reduce administrative barriers
- Introduce provisions on cost allocation (e.g. rate-basing,
inter-utility cost sharing, T&D upgrades, etc.)
- Consider interactions with existing state & federal
policies (ITC, PTC, MACRS, etc.)
- Address any legal and/or regulatory barriers to RE
- Consider local context and resource availability
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How to implement a FIT in VT?
• Clarify REC ownership, use and claims now and in future
• Evaluate options for 50 MW FIT program cap
– If smaller projects are a goal, can reserve a portion for residential, small C&I
– Can exclude utilities if they have another mechanism to cover costs
 Clarify intent of FIT rate structures
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If price transparency important, can separate energy, capacity, and RECs
If goal is to include non-taxable entities, can use higher FIT payments to
compensate for no federal tax benefits (to achieve equivalent return)
• Consider bonus payments
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Offset peak demand (for dispatchable technologies)
Use of specific biomass waste streams
Physical location of systems (e.g. building vs. ground mount)
Specific ownership structures (community owned)
Transmission (grid integration tech, and also grid constraints)
• Auction payment mechanism
+ Costs less, can send market signal if prices transparent and auction happens
more than once a year (3-4 times?)
– Favors larger projects (due to economies of scale), favors specific technologies
(unless technology specific), favors developers (end-users unlikely to participate)
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NREL Reports
“Feed-in Tariff Policy: Design, Implementation, and RPS Policy
Interactions” NREL, March 2009
http://www.nrel.gov/docs/fy09osti/45549.pdf
“State Clean Energy Policies Analysis (SCEPA) Project:
An Analysis of Renewable Energy Feed-in Tariffs in the
United States” NREL, May 2009 (revised June 2009)
http://www.nrel.gov/docs/fy09osti/45551.pdf
COMING SOON
“Feed-in Tariff Policy Design and Implementation:
Best Practices Guide” NREL, 2009
http://www.nrel.gov/docs/fy09osti/44849.pdf
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Thank you for your attention!
Strategic Energy Analysis Center
National Renewable Energy Laboratory
www.nrel.gov\analysis
1617 Cole Blvd.
Golden, CO 80401-3393
Karlynn Cory
Claire Kreycik
P: (303) 384-7464
E: karlynn.cory@nrel.gov
National Renewable Energy Laboratory
P: (303) 384-7447
E: claire.kreycik@nrel.gov
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Tariff Degression
c/kWh
Electricity Price
(c/kWh)
FIT Payment
levels
(t1, t2, etc.)
Time
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(can include
escalation)
Most countries
use fixed-price
FIT payments
(2) Premium
FIT Payment
(above spot
market)
FIT Price
(c/kWh)
Electricity
Price
(c/kWh)
Time
FIT Premium
(c/kWh)
FIT Premium (c/kWh)
(1) Fixed Price
FIT Payment
FIT Purchase Price (c/kWh)
Fundamental FIT Payment Choice - 1
Electricity
Price
(c/kWh)
Actual FIT
Premium
Amount
(c/kWh)
time
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Fundamental FIT Payment Choice - 2
Refinements to FIT payment methodologies
(3) Premium FIT Payment with Caps and Floors
FIT payment
premium, plus
spot market price
(total expected
revenues)
Premium goes
to zero (receive
the spot market
price)
Source: IDAE 2008
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Fundamental FIT Payment Choice - 3
Refinements to FIT payment methodologies
(4) Spot Market Gap Model (above spot market)
If the retail price rises
high enough, the FIT
payment goes to zero.
Total Payment
Guarantee (¢/kWh)
(¢/kWh)
Electricity Price
(¢/kWh)
Actual FIT
Payment (¢/kWh)
Time
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