The Local Feed-in Tariff Solution

Guaranteed payments for renewable energy,
generally known as feed-in tariffs (FITs), have become extremely
popular in the last few years. Pioneered in the US in the late 1970s
and 1980s and then perfected in Europe in the last ten years, FITs have
been very effective in bringing large amounts of renewable energy
online quickly.

A new report from the National Renewable Energy Laboratory (NREL), one of our nation’s preeminent research organizations, has found that FITs
have often been not only the most effective policy tool for new
renewables, but also the most cost-effective tool. This is a welcome
surprise to many of us in the renewable energy industry. The report
concluded that FITs can bring renewables online quickly and “often more
cost-effectively than under competitive solicitations.” (“Competitive
solicitations” refers to systems like California’s Renewable Portfolio Standard, which has struggled for years to achieve the mandated level of renewables.)

California and a couple of other states have “weak FITs” in place.
California’s current FIT, enacted by AB 1969 in early 2008, has brought
only about ten megawatts of new projects online. California’s previous
FIT, under the federal PURPA law that was effective in the 1980s,
brought about 10,000 megawatts online! Clearly, we need more, as I’ve
written about in previous columns.

The good news is that the Public Utilities Commission has proposed
to expand, under its own very broad constitutional authority, the
current FIT to ten megawatts (up from the current 1.5 megawatt limit)
and has suggested that the pricing process needs to be revisited. If
pricing is improved – eliminating the “market price referent” formula,
which unwisely links renewable energy to the price of electricity from
a new natural gas plant — the PUC proposal could itself be a major
boost for community-scale renewable energy projects throughout
California.

At the same time, a number of new FIT bills are pending in the California Legislature. AB 1106
is now the best of the bunch and will, according to the author,
Assemblymember Felipe Fuentes, be amended to allow for more favorable
pricing than under current law. This is a key change and will make this
bill far better than its competitors. It also expands the size cap to
20 megawatts, another necessary change.

But what about local measures? Can’t local governments and businesses get into this game? The short answer: yes. Here’s how.

I’ve written previously about Community Choice Aggregation
(AB 117) and how it is a highly promising way for cities and counties
to take control of their energy future. But here’s the new twist: CCA
can also be used to enact a local FIT.

Just about every jurisdiction has numerous rooftops and parking lots
that are aching to be solarized. The problem is that pricing under
current policies and market conditions is often difficult — just look
at the large white rooftops when you fly into any airport in California
and ask yourself why aren’t they all covered in solar panels? The
answer is that it’s often not economically feasible due to lack of
sufficient onsite load or lack of interest by building owners in taking
the time to develop their resource.

To be clear, here’s the problem: many rooftops and parking lots that
could support solar systems from 100 kilowatts to about 500 kilowatts
aren’t being solarized because this size segment is “orphaned” by
current policies and market conditions. There is a huge potential
around the state for solar on these rooftops and parking lots. (A wonky
aside: in the state FIT bill, AB 1106, that I’ve been promoting, we
don’t recommend that the state-level FIT provide price support for
facilities in this range because of the potentially higher cost to
ratepayers around the state. But with the local jobs and other economic
benefits, as well as low- or zero-interest bonds available to local
governments, there is the potential to make these types of systems
cost-effective).

Under CCA, however, local governments can create a local FIT option
because CCA gives rate control to the members of the CCA organization
(cities and counties). CCAs can also phase in service to their
customers. For example, the San Joaquin Valley Power Authority, which is the furthest along in California in becoming an active CCA organization, plans
to serve its own members’ power needs first (government buildings),
then bring in industrial, then commercial and finally residential
customers. This is a phased approach that takes some of the risk out of
the CCA business model.

Following the same strategy — but with a new twist — CCA
organizations may implement CCA initially as a way to incentivize the
development of 100-500 kilowatt solar systems on rooftops and parking
lots. They can do this by buying this power from private developers
under a local feed-in tariff, and using this power to meet their own needs. Local governments may even be able to use zero-interest federal bonds (CREBs or QECBs)
to provide low- or no-cost financing opportunities for private sector
entities wishing to build these solar facilities and sell power to the
CCA organization.

This is an elegant and creative way to phase in CCA, utilize unused
rooftops and parking lots for solar and create economic opportunities —
and green jobs — for many private sector entities. Under this approach,
cities and counties may gain early support for CCA and strongly
stimulate local economies into leading the charge for the green energy
economy.

CCA, and the CCA-based FIT, is one of the most powerful tools
available to cities and counties to accelerate the renewable energy
transition and spur a broader movement in their regions.

by
Tam Hunt, Renewable Energy Consultant

Tam Hunt is a renewable energy consultant (www.tamhuntconsulting.com) and a Lecturer in renewable energy law and policy at UC Santa Barbara’s Bren School of Environmental Science & Management.