Renewable Feed-in Tariffs

A new approach to providing grid-parity to renewable power is coming online in California.  This is a welcome advancement in government policy to renewable power supplies, in this instance solar power.  The California Public Utility Commission will initiate a bid process for small scale developers to install the solar plants at the lowest cost the developers believe they can attain.

The greatest element of this project is that it reduces the prominence of government market meddling.  While renewable power sources require subsidies to be competitive for a variety of the reasons, the introduction of market forces into the development process of renewable power supplies is a much welcomed addition to remove government imposed pricing.  The cleantech blog here, http://www.cleantechblog.com/2010/03/state-of-california-feed-in-tariff.html, provides more detail about government subsidies for renewable power sources and their causes, namely that fossil fuel extraction costs are subsidized.

The timing of this initiative is excellent with California looking for new methods and aligning incentives of various parties to meet the aggressive RPS measures for the state to generate 20% of its power from renewable sources.  For California, this is another instance of their leadership to develop renewable power and an attempt to lower the cost of the solar installation and introduce market forces through a bidding process.

In the end, this is going to be a real win for consumers because the cost is solar is coming down but also the cost-savings realized through a competitive bid process.  This bid process also avoids attempts by the CPUC to predict markets and set future prices for renewable power that down the road could be horribly out of line providing either a gross disincentive to develop solar or a political problem where the taxpayer is getting gouged to support renewable power.

I am looking forward to watching the development of this particular California proposal and hope that it works.  Introducing market forces to the renewable development space will provide benefits through the competition.  While grid-parity for renewable power sources, employing capitalism in this space will open the door for people to realize an incentive and be able to predict with some certainty the reward they may potentially gain.

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One response to “Renewable Feed-in Tariffs

  1. maxbrodsky

    I enjoyed this blog entry, though I wish there were a link here to the specific details of this program. I hope my comments below are relevant to the details of the new California Feed in Tariff, and at least that they are helpful in evaluating the merits of any feed-in tariff.

    This FiT is not necessarily a real win for consumers simply because it lowers the cost of installation. Costs for an individual purchase may go down, but consumers subsidize that cost reduction collectively as utility rate payers and state tax payers. The question is not are we saving money, but are consumers’ dollars being spent as efficiently as possible? This brings me to a couple of questions:

    Value Chain: How do we know that the bidding process is correctly targeting installers instead of another part of the value chain, like the manufacturers? If a bidding system will squeeze margin from the value chain, don’t we want to squeeze the fattest part? How do installer margins compare to the margins of manufacturers?

    Scale: Are small-scale projects the most efficient investment? If the goal is simply to reaching the statewide 20% RPS goal, wouldn’t it be better to build larger solar farms with economies of scale?

    Grid Impact:
    Does this FiT program consider relative performance? Are we building these smaller scale installations in places where they will produce the most energy? Targeting a smaller number of large scale projects would be less expensive and difficult to initiate and administer.

    Is the benefit of distributed solar in feeding energy back into the grid, or in lowering the demand on the grid? Given that solar is producing energy in the afternoons, it might be wiser to use it to reduce grid demand for high demand users—like large retail outlets with high climate control costs and flat roofs rather than other locations like residential rooftops, or a remote rural solar farm.

    Cost Savings: Is the bidding process significantly lowering costs for the purchaser or the state? Could greater cost savings be achieved by maintaining the current purchase price but lowering the premium paid for solar and/or the term of the commitment to pay that premium?

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