Posted on 01 March 2012

Feed-in tariffs give solar shine

In a unique initiative for a city, Gainesville, Florida, introduced feed-in tariffs for solar panels on its own in 2009. Within a year, electricity production from solar panels grew fivefold in the city. In the absence of a national policy, several US states have followed Gainesville's example in recent years, including California, Vermont, New Jersey and Florida. Furthermore, the German and Spanish successes with feed-in tariffs have led to the policy spreading to more than 60 countries.



Keywords: feed-in tariffs, solar panels, renewable energy, local subsidy, California

Feed-in tariffs (FITs) are the most widely used policy instrument for supporting the development of renewable energy sources, especially solar PVs. Many variations exist, but the basic idea is that the electricity provider is ordered to buy renewable-source produced electricity from smaller producers, even households, at a subsidised price. In that way, the cost of sponsoring renewable energy is shifted from taxpayers to electricity consumers. In the German variant, the leading one, a contract is written for a fixed price covering a longer time period, often 20 years. In the Spanish variant, price is tied to the market by the electricity provider paying a market price plus a premium. The size of the premium also varies among feed-in tariffs, where the most ambitious programmes have the goal that the small-scale provider's investment for solar panels are paid off within a reasonable time period.

A simpler and less far-reaching policy is net metering, which orders the electricity provider to buy electricity from solar panels and balance it against the producer's electricity consumption. In this system, solar panel owners can reduce their electricity costs, but not make a profit.

Fivefold growth of solar PVs
By the start of 2011, FITs had been established in at least 61 countries and 26 provinces. Cities like Gainesville that have control over their local electricity provider can also introduce FITs. After having studied the German growth in solar energy, Gainesville politicians voted unanimously in 2009 for a similar system with large premiums. It was established in March 2009 and by September 2010, electricity from solar panels in this little city had grown by more than 500%, with a combined capacity of more than 2 MW. The measure created new jobs and led only to a marginal increase in electricity bills (circa 0.5%). In Gainesville's case, FITs are part of a broader sustainability policy. In the energy sector, the city has subsidised installations of solar water heaters since 1997 and solar PVs since 2007, and is building a power station for biomass to be ready in 2013.

Gainesville received wide publicity for its initiative and has gained followers in the US, which lacks a national system for FITs. US states, like California, Vermont, New Jersey and Florida have introduced or plan to introduce FITs, and also a few cities, including Sacramento and Los Angeles.

California adopts FITs
California is the leading US state for solar panels and has previously supported installations with tax rebates and subsidies. Within the framework of Governor Schwarzenegger's programme, with the goal of a million solar roofs (3 GW) by 2017, California was in 2007 one of the first in the US that introduced net metering. The next governor, Jerry Brown, has raised the ambition further, with the goal of a total capacity of 12 GW by 2020. Electricity providers are required to increase the share of renewable electricity to a third of the total amount by 2020. A key instrument to reach this goal is the new 2009 FIT that requires the electricity provider to buy solar electricity with 20-year contracts, up to 1 GW, a limit that may be raised. Besides ordinary house owners, smaller business owners are expected to be attracted by the FIT to install solar panels on storage facilities, multi-story car-parks, etc.

When the Californian FIT was introduced, the state capitol, Sacramento, went a step further through its municipally owned electricity provider SMUD, which raised the limit for FITs locally, and widened it to include other types of renewable energy sources. It is just one of many examples of Californian cities that have expanded on the state's policy instruments (see also San José). Berkeley has built up a financing system for solar panels, providing loans that are paid back via property taxes. San Francisco has grants for installations, and Los Angeles has plans to introduce its own FITs.

Ontario's FITs without limits
The inspiration for feed-in tariffs in the US comes not only from Europe, but also from the Canadian province of Ontario, which was first in North America to introduce FITs in 2006, as part of a policy to phase out coal power entirely. Ontario has the most comprehensive programme for renewable energy on the continent. When started, the FIT had a limit of 1 GW, which was reached within one year. After an evaluation, the programme was restarted in 2009, this time without a limit, and within one year Ontario had signed contracts for 184 projects for solar power, wind power, water power and biogas, with a total production capacity of 2.5 GW.

Generous FITs have been one of the main causes of the boom in solar PVs over recent years. It is the fastest growing energy source, with an annual global growth of circa 50% between 2005 and 2010. If this continues over 10 years, the capacity will increase 58-fold. Due to nearly 50% lower prices for solar cells, installed world capacity increased by 72% over 2010, i.e. an additional 17 GW, for a total of 40 GW.

Germany contributed 7.4 GW to this increase, which consolidated it as the largest market, with 44% of the world's capacity (see also Freiburg). In second place was Spain with 10%, and the EU dominated the world market with 80% of installed capacity. Japan and the US had 9% and 6%, respectively. The development in Germany and Spain (see also Barcelona) has shown the value of FITs, which were introduced in the recent years in some key countries: Britain, Japan, and China. The solar PV capacity of China amounted in 2010 to a modest 2% of the world total, but the nation is the world’s leading producer of solar PVs with 59% of production together with Taiwan in 2010.

Renewables grow globally
The overall development of renewable energy sources has been so rapid in the recent years that the picture of their status has not really kept up. In 2010 they constituted half of all newly installed electricity production capacity, and they are becoming more important for heating and transport also (see also Reykjavik and Copenhagen). If one includes hydro-power, renewable energy sources provided the world with 16% of all energy consumption and 20% of all electricity production in 2010.


References
REN21 Renewable Energy Policy Network for the 21st Century, 2011, Renewables 2011 Global Status Report, Paris: REN21 Secretariat, http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR2011.pdf

Rob Goodier, “Bringing Clean Energy to Your Town: FIT Programs”, Smarter Cities, A Project of the Natural Resources Defense Council (NRDC), September 27 2010, http://smartercities.nrdc.org/articles/bringing-clean-energy-your-town-fit-programs

Kate Galbraith, “Europe’s Way of Encouraging Solar Power Arrives in the U.S.”, New York Times, March 12 2009, http://www.nytimes.com/2009/03/13/business/energy-environment/13solar.html

John Lorinc, “Feed-in Tariffs: Ontario’s Experience”, New York Times, February 10 2009, http://green.blogs.nytimes.com/2009/02/10/feed-in-tariffs-ontarios-experience/

John Lorinc, “Ontario Issues $8 Billion in Renewable Energy Contracts”, New York Times, April 9 2010, http://green.blogs.nytimes.com/2010/04/09/ontario-issues-8-billion-in-clean-energy-contracts/

City of Gainesville, Sustainability Portal, http://www.cityofgainesville.org/GOVERNMENT/CityManager/Sustainability/tabid/658/Default.aspx

Solar America Communities, http://solaramericacommunities.energy.gov/

Environment California, http://www.environmentcalifornia.org/home

Key data are retrieved from the UN Demographic Yearbook 2011, http://unstats.un.org/unsd/demographic/products/dyb/dyb2011.htm

Text by: Martin Jacobson