RENEWABLE ENERGY:

Some see daylight at last for U.S. feed-in tariffs

With Congress and President Obama championing green energy, the solar industry sees an opening to pursue a goal it long considered unattainable: European-style subsidies for sun-generated power.

The national trade group for solar manufacturers is discussing whether it should push for a national feed-in tariff, a funding mechanism that forces utilities to buy green power at premium prices.

Popular in Germany and Spain, feed-in tariffs have gained little traction in the United States. But that is changing. Several cities and states are now considering or have enacted feed-in tariffs.

"In the last year and a half, going green has become a pretty hot issue," said Roger Efird, chairman of the board of the Solar Energy Industries Association, a trade group for 850 companies. "Ideas that never had a lot of political appeal today have political appeal because it's got public support."

A feed-in tariff offers an incentive for ramping up renewable energy. Utilities pay above-market rates for energy generated by homeowners or businesses that install solar panels and connect to the grid. In Europe, lucrative rates and long-term contracts are offered for such arrangements.

A feed-in tariff that started in Germany in 1991 is credited with powering an expansion of solar there. At about the size of Montana, Germany has five times the number of installed solar panels that the United States has and is second only to Japan in terms of photovoltaic power generation, according to the German government.

A similar program could be a boon to U.S. solar power. Largely because of cost, solar has generated little interest here. In 2007, it made up less than 0.02 percent of the country's electricity generation.

But feed-in tariffs are controversial. They are blamed for sharply higher electricity prices in countries where they exist. Some question whether Americans accustomed to comparatively low electricity costs would tolerate paying more.

Utility companies also argue that they are not needed, since Congress is poised to pass legislation that would set financial penalties for carbon emissions from traditional power sources. And there might not be a political appetite for a fight over a national tariff.

It is sensitive enough that the Solar Energy Industries Association's president and spokeswoman did not want to talk about the question of lobbying for it, except to call the tariff "a heavy lift."

But Efird said that when the issue came up at the association's board of directors' meeting last month, there was "pretty much a consensus that the political atmosphere at this point would justify us investing some of our resources in a lobbying effort for a feed-in tariff."

Since then, a policy task force has been meeting about twice a week, Efird said, "working on the details of what we think the ideal feed-in tariff should look like."

'New ideas take time'

Congress does not appear likely to embrace a feed-in tariff anytime soon, however.

"There is no interest on the Energy Committee's part to examine the concept of feed-in tariffs," said Bill Wicker, spokesman for the Senate Energy and Natural Resources Committee, the most likely starting place for such discussions. "We believe a better way to accomplish the same goal -- creating a market for renewables -- is with a renewable electricity standard."

That standard would require utilities to generate a portion of their power from green sources. Congress is expected to consider such a mandate as part of an energy or climate bill. Wicker said that passing a renewable electricity standard is a top priority for Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.).

But a congressman with a bill proposing a feed-in tariff believes momentum is building, although the concept will take time to sell.

"We still need to get folks to a basic concept of what it is," said Rep. Jay Inslee (D-Wash.). "Ten percent of the Congress could probably not even tell you what a feed-in tariff is."

Inslee calls the feed-in tariff "the 800-pound gorilla of policies when it comes to really driving the development of these markets."

"It's an idea whose time, I believe, will come," Inslee said. Pressed on the timing, he said it could happen this year, but "I wouldn't bet the farm on it, because it's a new idea, and new ideas take time."

The solar industry has no illusions about winning approval for a feed-in tariff anytime soon, Efird said.

"This is something that has to be proposed, gestated and rejected," Efird said, noting that it took 18 attempts to pass an extension of the renewable-energy tax credit.

"The timing seems right to throw it into the pot for discussion," Efird said. "There is some support for it in Congress."

There would be much to debate should Congress consider a feed-in tariff.

The most important question likely would be the rate at which a national tariff is set. Solar producers say it has to be high enough to provide an incentive to install solar systems that cost tens of thousands of dollars for homes and hundreds of thousands of dollars for businesses.

The rate is an equally important question for utility companies. They say feed-in tariffs push up power prices, costs they would need to pass on to consumers.

"It's tied to whatever the feed-in rate is," said Kurt Haeger, managing director of resource planning for Xcel Energy Inc., a Minneapolis-based company with 3.3 million electricity customers in Minnesota, Colorado and Texas. "The devil is in the details."

Fla. utility adopts tariff

When the utility company in Gainesville, Fla., decided last fall to adopt a feed-in tariff, it picked a rate that would generate a 5 percent rate of return annually for home and business owners who install solar.

The program, which started March 1, pays roof-mounted system owners 32 cents per kilowatt-hour generated, guaranteed for the next 20 years. By comparison, those feeding power into the grid previously earned 12.5 cents per kilowatt-hour through a net metering program. Used by several states, net metering gives home and businesses that generate power credits on their electric bills, which offset energy usage.

That feed-in tariff rate makes Gainesville's program the first in North America to generate a profit for those selling their power to the utility, said Rachel Meek, commercial analyst with Gainesville Regional Utilities, known as GRU.

"As an owner of a building, it's worth it to you to put it up there and sell the power back, because now, you're your own utility," Meek said.

To pay for the program, GRU raised rates to a level equal to about $1 a month for all customers, Meek said. GRU serves 80,000 residential and 10,000 nonresidential customers.

Customers responding to a survey before the program's enactment said they were willing to pay that increase to support more solar in Gainesville, Meek said. About five years earlier, they had rejected the idea of expanding the coal plant in town to meet electricity generation needs.

But to keep the increased cost to $1 per month, GRU must limit the feed-in tariff to 4 megawatts per year, about enough to power 1,500 homes, Meek said.

Requests flooded into GRU. Slots are filled for this year and next, and half of 2011. The rate of 32 cents applies only for those signing a contract through 2010. The following year, the rate falls to 30 cents per kilowatt-hour. Those who join in 2016 will get 23 cents per kilowatt-hour.

Gainesville resident Gary Rowell, 54, signed up to put solar systems on both his home and his auto service business. Installation starts this week, with the home system costing $42,000 and the one for his business running $195,000. The business is 8,700 square feet, while the home runs 2,900 square feet.

Rowell's motivations were more philosophical than financial, though the program "sort of helped me along with the decision." he said. "The feed-in tariff is definitely a plus."

"With seven kids and five grandchildren, I need to do something to protect their future," Rowell said of his main impetus.

Rowell is hoping to get a $100,000 rebate from the state in addition to the GRU incentives. Combined, he said, that two would mean the system is paid for in five to six years. After that, he said, it will generate income for 14 to 15 years.

Other incentives

Hawaii, which is expected to adopt a feed-in tariff program before the end of the year, plans to decide on its rate this summer.

In California, a feed-in tariff program offers a rate that varies depending on the time of day power is generated. It ranges from a low of 8 cents per kilowatt-hour during off-peak times to a high of 31 cents during peak demand hours. But overall, it averages out to a level that makes it not enough to really spur demand, said Wilson Rickerson, a Boston-based renewable energy consultant.

The California program for homeowners is limited to small systems up to 1.5 megawatts of capacity.

"The price is too low for anyone to care about," Rickerson said. Instead, he said, many people with solar in California chose net metering.

The flip side of the California experience, Rickerson said, is the market in Spain. The price there was so high the country had to limit how many people it would let into the tariff program.

In addition to the rate, U.S. lawmakers would have to decide how a feed-in tariff would interact with other incentives, including tax breaks for installing renewable systems, a renewable electricity standard and net metering.

Utility companies nationally might push to eliminate net metering in exchange for agreeing to allow the feed-in tariff, Efird said. Depending on the rate in the feed-in tariff, he said, net metering can be better for small generators like homeowners.

"We are in favor of a feed-in tariff, but not at the expense of net metering," Efird said.

The solar industry believes a feed-in tariff would work in conjunction with a renewable electricity standard. The tariff would stimulate solar production, Efird said, giving utilities more suppliers to help meet a national mandate for renewable power generation.

Utilities argue that the economics for solar are the problem. Generating solar power from photovoltaic cells costs $200 to $300 per megawatt-hour, compared with wind power, which costs $70 to $90 per megawatt-hour, and natural gas generation, which costs $70 to $85 per megawatt-hour, said Dan Riedinger, spokesman for the Edison Electric Institute, a trade group for investor-owned electric companies.

"That has to change," Riedinger said. "A feed-in tariff doesn't change that."

The solution, he said, is to invest money in research to lower the cost of solar generation and make it more competitive.

"The goal of trying to speed the penetration of wind, solar and other renewables is the right one," Riedinger said. "Our concern is the feed-in tariff is not the best mechanism to make that happen."