State clean energy policy analysis renewable energy feed in tariffs
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State Clean Energy Policy Analysis: Renewable Energy Feed-in Tariffs. SCEPA Webinar Toby Couture Energy & Financial Markets Analyst February 12, 2009. Feed-In-Tariff Definition.

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State clean energy policy analysis renewable energy feed in tariffs

State Clean Energy Policy Analysis:Renewable Energy Feed-in Tariffs

SCEPA Webinar

Toby Couture

Energy & Financial Markets Analyst

February 12, 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


Feed in tariff definition

Feed-In-Tariff Definition

  • Feed-in Tariff (FIT)*:A renewable energy policy that offers a guarantee of payment to renewable energy developers for the electricity they produce.

  • These payments can be comprised of:

  • 1: Electricity sales, or

  • 2: Electricity sales + RECs

  • * Also called fixed-price policies, minimum price policies, standard offer contracts, feed laws, feed-in laws, renewable energy payments, renewable energy dividends, and advanced renewable tariffs.

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Fundamental fit payment choice

Fundamental FIT Payment Choice

(1) Fixed Price FIT Payment

Fixed Price FITs most common

(2) Premium

FIT Payment (above market price)

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Fit policy characteristics

FIT Policy Characteristics

  • FIT policies generally:

  • Guarantee grid interconnection for RE

  • Provide a purchase guarantee (“must-take” provision)

  • Involve a separate supply-oriented meter

    (i.e. not net metering)

  • Are differentiated by

  • technology type, project size,

  • location and resource quality

  • Are designed to ensure the

  • profitability of RE investments

  • by basing the per kWh payment

  • on levelized RE project costs

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Feed in tariff misconceptions

Feed-in Tariff Misconceptions

  • FITs are not a “foreign” policy

    • Utilities have been signing cost-recovery + profit contracts for decades, only for conventional generation

  • Modern FITs are different from PURPA

  • FITs can be compatible with an RPS mandate

    • The real question is between FITs and competitive solicitations (RFPs)

    • They are two alternative procurement mechanisms

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Fit policy application in the u s

FIT Policy: Application in the U.S.

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Key differences b w us eu fits

Key differences b/w US & EU FITs

  • 1:Most US FITs are tied to avoided cost (LMP, MPR, etc.) rather than based on levelized RE costs

  • 2: US FITs impose a number of caps:

  • - project size caps

  • - program size caps

  • - total cost caps

  • - caps based on green

  • power participant base, etc.

  • 3. FIT payments in the US are not differentiated by technology type, project size, or resource quality

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Eu research findings

EU Research Findings

  • FITs are more effective at stimulating domestic job creation than other RE policies

  • FITs are not costlier than competitive solicitations

  • FITs are lower risk (and lower cost) than tradable REC markets

  • FITs create more dynamic RE markets with more rapid RE growth

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Eu research findings1

EU Research Findings

  • Countries with FITs:

    • 1. have highest RE deployment effectiveness

    • 2. have highest and most dramatic job creation growth, and the highest economic benefits tied to industry, manufacturing, and service sector development

    • 3. have counter-intuitively delivered lower cost RE generation than countries employing “competitive” policies like the RPS & RO in the UK

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Fits vs alternative policies

FITs vs. Alternative Policies

80

70

60

50

Electricity Generation (TWh)

40

30

20

10

Electricity Generation (TWh)

0

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Countries with wind FIT

Countries with alternative support

Source: EUROSTAT, 2008; NREL, 2008

Wind Power Deployment in the EU:

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Re policy cost

RE Policy & Cost

FITs

RPS + RECs

* Electricity price + Tradable Green Certificate (i.e. REC)

Source: BMU 2008; ISI, 2008; Fouquet, D. et al., 2008; NREL 2009

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Fits vs rps on cost

FITs vs. RPS on Cost

FITs

RPS + RECs

Source: OPTRES, 2007; NREL 2009

  •  EU research

  • suggests that FITs

  • offer better

  • value for money

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Re jobs and economic development

RE Jobs and Economic Development

FITs

RPS + RECs

Source: BMU 2008; EUROSTAT 2008; NREL 2009

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Fit ratepayer impact

FIT Ratepayer Impact

34 018 MW

* 1 Euro = 1.29 USD; www.XE.com, February 10th 2009

Source: Bohme, D. et al., 2008; VDN, 2008; BMU 2008; NREL 2009

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How can fits help meet us state goals

How can FITs help meet US State goals?

  • Job creation (both up & downstream)

  • Meeting RPS targets

  • Fossil fuel price hedge

  • Stimulate rapid market growth in RE

  • Foster cost-efficient RE development

  • Target distributed generation

  • Diversify energy supply

  • GHG reductions

  • Foster local ownership (greater

  • economic benefits)

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Potential impacts on state drivers

Potential Impacts on State Drivers

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Potential impacts on state drivers1

Potential Impacts on State Drivers

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How to implement a fit in the us

How to implement a FIT in the US?

  • Introduce as an alternative procurement mechanism to RFPs to meet RPS targets

  • 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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Fit best practices

FIT Best Practices

  • Payments based on the cost of generation

    • Gainesville’s FIT is so far the only FIT in the US to be based on RE development costs

  • Purchase guarantee (must-take provision)

  • Marginal costs integrated into the rate base (i.e. not via green power programs, treasury, etc.)

  • Payments differentiated by technology type, project size, location, and resource quality

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Fit best practices1

FIT Best Practices

  • Contracts should be based on lifetime of the project (secures the hedge benefit and lowers financing costs)

  • Policy stability is as important as price stability to investors

  • Clear interconnection standards and cost allocation procedures (e.g. for T&D upgrades)

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Fits in the financial crisis

FITs in the Financial Crisis

  • In the midst of the financial crisis, FITs can help get RE projects financed and stimulate jobs:

    • US is down to four (4) tax equity investors

    • FITs facilitate debt financing

       Reduce dependence on tax equity

    • FITs facilitate project financing through price security

    • Proven mechanism to create jobs and stimulate new industries

    • Help leverage capital investment from a wider variety of investors, including untapped local capital

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Coming soon

Coming Soon…

  • NREL Report on FIT Policy Design:

  • “Feed-in Tariff Policy Design and Implementation: Best Practices Guide” NREL, 2009

  • http://www.nrel.gov/docs/fy09osti/44849.pdf

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State clean energy policy analysis renewable energy feed in tariffs

Thank you – Questions?

Toby Couture

Energy & Financial Markets Analyst

Strategic Energy Analysis Center

National Renewable Energy Laboratory

www.nrel.gov/analysis

1617 Cole Blvd.

Golden, CO 80401-3393

P: (303) 384-7471

email: [email protected]

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