# Presentation: 354533

**SCEPA Webinar**
**Toby Couture**
***Energy & Financial Markets Analyst***
**February 12, 2009**

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

## 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.

**Notes:**
Spot electricity revenues are not revenues from net metering – they are explicit payments for the electricity generated – an for all of the electricity generated (net metering only pays for the excess generated, above a site’s use)

## Fundamental FIT Payment Choice

**(2) Premium **
**FIT Payment** (above market price)

**(1) Fixed Price FIT Payment**

**Fixed Price FITs most common**

## 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

## 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

## FIT Policy: Application in the U.S.

**Notes:**
CA, WA and MN.  

CAVEAT:
No US FIT is based on the cost of the RE system, 
nor fully transparent 
Nor uniformly available, 

This is why they are not as effective as FITs in Europe.

## 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**

## 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

## 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

## FITs vs. Alternative Policies

**Wind Power Deployment in the EU: **

## RE Policy & Cost

## FITs vs. RPS on Cost

** ******** ****EU research **
**suggests that FITs **
**offer better **
_**value for money**_

## RE Jobs and Economic Development

**Source: BMU 2008; EUROSTAT 2008; NREL 2009**

**FITs**

**RPS + RECs**

## FIT Ratepayer Impact

## 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)**

## 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

## 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**

## 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)**

## 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

## 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](http://www.nrel.gov/docs/fy09osti/44849.pdf)__ _

## Thank you – Questions?

**Toby Couture**
- Energy & Financial Markets Analyst
- Strategic Energy Analysis Center
- National Renewable Energy Laboratory
- _[www.nrel.gov](http://www.nrel.gov/analysis)__[/analysis](http://www.nrel.gov/analysis)_
- 1617 Cole Blvd.
- Golden, CO 80401-3393
- P: (303) 384-7471
- email: _[Toby_couture@nrel.gov](mailto:Toby_couture@nrel.gov)_

**Thank you – ****Questions?**