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

1. 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

2. 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. National Renewable Energy Laboratory Innovation for Our Energy Future

3. Fundamental FIT Payment Choice (1) Fixed Price FIT Payment Fixed Price FITs most common (2) Premium FIT Payment (above market price) National Renewable Energy Laboratory Innovation for Our Energy Future

4. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

5. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

6. FIT Policy: Application in the U.S. National Renewable Energy Laboratory Innovation for Our Energy Future

7. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

8. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

9. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

10. 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: National Renewable Energy Laboratory Innovation for Our Energy Future

11. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

12. FITs vs. RPS on Cost FITs RPS + RECs Source: OPTRES, 2007; NREL 2009 •  EU research • suggests that FITs • offer better • value for money National Renewable Energy Laboratory Innovation for Our Energy Future

13. RE Jobs and Economic Development FITs RPS + RECs Source: BMU 2008; EUROSTAT 2008; NREL 2009 National Renewable Energy Laboratory Innovation for Our Energy Future

14. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

15. 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) National Renewable Energy Laboratory Innovation for Our Energy Future

16. Potential Impacts on State Drivers National Renewable Energy Laboratory Innovation for Our Energy Future

17. Potential Impacts on State Drivers National Renewable Energy Laboratory Innovation for Our Energy Future

18. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

19. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

20. 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) National Renewable Energy Laboratory Innovation for Our Energy Future

21. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

22. 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 National Renewable Energy Laboratory Innovation for Our Energy Future

23. 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: Toby_couture@nrel.gov National Renewable Energy Laboratory Innovation for Our Energy Future