Feed-in Tariffs

A Regulatory Tool

by lois Barber

All across the country, whether motivated by a concern for the environment, energy security, job creation, the economy — or just a desire to make a buck — Americans are looking outside our borders to see what’s been fueling the global growth in renewable energy. They are finding that one type of legislation, in Europe and elsewhere called a feed-in tariff (FIT), has proven to be the world’s most effective renewable energy policy.

FIT legislation is in place in more than 40 countries, states, and provinces throughout the world. The laws differ in details, but share essential principles. They require utility companies to provide access to the grid for anyone or any group producing renewable energy , and to buy all the renewable energy available at established prices per kilowatt hour for a set period of time, usually 15 to 20 years. The prices vary according to the type of technology, the size of the system and its location. The increased costs to the utilities are paid for by adjustments to all their customers’ electricity bills. In Germany, this has meant an increase of about $3 a month for average homeowners — about the cost of a loaf of bread. A board is established that meets periodically to review the policy and adjust the rates for new contracts.

Germany introduced this type of legislation in 1991 and it has made them the world’s leading producer of renewable energy technology, creating close to a quarter-of-a-million jobs. Renewable energy jobs increased 40 percent between 2004 and 2006 alone. Germany now has 1.3 million solar panels in place. It reached its target of producing 12.5 percent of its energy from renewable sources in 2007 — three years ahead of schedule. Now it is up to 14 percent. The country has already reduced its CO2 emissions by 18.5 percent compared with 1990 levels, and is on track to meet its target of a 40 percent reduction by 2020. Dr. Hermann Scheer, a member of the German Parliament who played a key role in writing and enacting the law, points out how FIT laws allow everyone — people from all walks of life — to profit from producing renewable energy. “New players have stepped into the market who now no longer have to ask the established energy providers for permission to access the grid. Only in this way can a breakthrough for renewable energy take place,” Scheer said. One-third of the solar energy produced in Germany is from farmers putting solar systems on their barn roofs.

FIT legislation has also made Denmark and Spain global leaders in renewable energy. Together, wind turbines in Denmark, Spain and Germany represent 53 percent of the total wind-generating capacity worldwide. Until recently, this idea that has proved successful in creating jobs and reducing CO2 emissions, while handsomely rewarding investors. But it has received little attention here in North America. Only Ontario has a basic FIT system in place. But now, eager to bring these benefits to their own states and provinces, legislators are lining up to get similar bills introduced. In September, Michigan Rep. Kathleen Law introduced House Bill 5218, the Michigan Renewable Energy Sources Act. It includes all renewable energy sources without discrimination: hydro, wind, solar, geothermal, biomass and biogas; sets 20-year contracts; and gives “reasonable returns” on investment. The rates for solar energy range from 50 cents to 71 cents per kilowatt hour depending on the type of technology and the size of the system. For wind, the rates range from 2.5 to 10.5 cents per kilowatt hour. Everyone who wants to participate must be connected to the grid within two months of their request. Any increase in price will be shared among all utility rate payers. Promoters of the legislation point out that over time any short-term rate increases will eventually turn into long-term savings as utilities switch From buying increasingly expensive fossil fuels to clean, renewable energy.

Lois Barbe 14 ENERGYBIZ May/June 2008