With the Senate girding for a debate over sweeping legislation that would reduce greenhouse gas emissions and spur development of renewable electricity, two House Democrats are preparing a more limited bill with similar goals.
Reps. Jay Inslee of Washington and Bill Delahunt of Massachusetts are preparing a bill that would require utilities to purchase small-scale renewable energy from developers at rates equal to the cost of production plus a premium. The so-called feed-in tariffs proposal would set European-style guarantees for investors that many credit for a recent boom in solar energy in Germany.
"We have some brilliant Americans with brilliant business plans with brilliant technologies, but they don't have financing," Inslee said at a briefing last week on Capitol Hill. "The charm of the feed-in tariff is solid, take-it-to-the-bank security and confidence for the investing community."
Proponents say feed-in tariffs can be more effective than renewable-energy standards, such as the one included in the House climate bill by Democrats Henry Waxman of California and Ed Markey of Massachusetts, because they offer staggered rate incentives for each energy source based on current production costs. The initial rate that utilities would pay for solar energy, for example, would be higher than payments for less-expensive wind energy.
"The renewable-energy standard is good, and I'm a firm backer, but it has a weakness," Inslee said. "It's really only an incentive for the next-closest-to-competitive technology, frankly, which is wind right now."
The case for feed-in tariffs assumes that the cheapest renewable technology today won't necessarily be the cheapest technology in the future. Rate incentives that support many energy sources would create a race to become the next competitive alternative to fossil fuels or nuclear power, proponents say.
One widely cited model is Germany, which has become the world's largest market for photovoltaic systems and wind energy since passing its Renewable Energy Sources Act almost a decade ago. Germany more than doubled its national supply of renewable energy between 2000 and 2007 and was able to meet its 2010 target of 12.5 percent renewable electricity three years ahead of schedule.
"The Germans made a big and very important change," said former CIA Director James Woolsey, a panelist at last week's briefing and a partner in the "clean tech" division of investment group VantagePoint Venture Partners. "It's the reason that Germany -- a quarter of the size of the United States -- has six times as much solar."
There is a building in Munich, Woolsey said, that produces more solar energy on its rooftop than is produced in either Texas or Florida. The German boom in renewable energy -- driven in large part by the feed-in tariff -- generated 117,000 new jobs in the renewable power sector between 2004 and 2008, according to the German Environment Ministry.
Woolsey said feed-in tariffs could also improve national security by diversifying the United States' electricity production.
Today's electric grid relies on a sprawling network of transmission lines and centralized power plants that are vulnerable to attack, Woolsey said. Feed-in tariffs would expand the use of distributed generation like small wind and solar, helping reduce grid congestion and eliminating targets for terrorists.
"What we have today, with extremely high-voltage transmission lines and transformers sitting out behind cyclone fences next to highways, is vulnerable to physical attack; it is vulnerable to cyber attack," said Woolsey, adding that even amateur hackers can penetrate some off-the-shelf software programs that utilities use to monitor operations.
'Nightmares of PURPA'
Under a feed-in tariff proposal that Inslee sponsored last year, renewable energy developments of less than 20 megawatts would be given priority access to the grid and could sign 20-year contracts with utilities that guarantee a 10 percent rate of return. Rates would be tailored to fit the cost of production in different regions of the country and would be set by the Energy Department.
The "Renewable Energy Job and Security Act" would have paid for itself through an increase in consumer utility bills. The feed-in tariffs could also include built-in decreased payments to drive innovation and cost reduction over time.
Opponents of feed-in tariffs say their mandatory rate structures would raise electricity bills and would warp the free market as the Public Utilities Regulatory Policies Act (PURPA) did in the 1970s and '80s.
PURPA was meant to support the expanded use of renewable energy by requiring utilities to purchase power from non-utility producers at the "avoided cost" rate, or the amount the utility would have paid to generate the power on its own or to purchase it from another source.
"Thanks to PURPA, many customers were paying a higher price for electricity than what was selling on the open market," said David Owens, vice president of business operations at the Edison Electric Institute, at an April panel discussion at the Washington-based New America Foundation.
Owens argued against proposals to add a national feed-in tariff on top of a comprehensive cap-and-trade bill for greenhouse gases that includes a renewable energy standard. He said the national march toward renewable energy must happen at an evolutionary, not a revolutionary, pace if customers want to avoid being hit with excessive hikes in their utility bills.
"We have a range of options available to stimulate the development of renewables," Owens said. "But I have difficulty if we seek to take another national approach that gives me the nightmares of PURPA."
Action by states, cities
In May, Vermont became the first state to pass feed-in tariffs for renewable energy, joining Ontario as the only state-level governments in North America to adopt such a policy.
The Vermont bill got a mixed response from lawmakers and was passed into law without the signature of Gov. Jim Douglas (R), who released a statement saying the bill "fails to recognize the current viability of renewable energy in a competitive setting and will needlessly increase costs to Vermont consumers."
Several other states -- including Michigan, Minnesota, Indiana, California and South Dakota -- are considering their own versions of feed-in renewable energy tariffs.
"The feed-in tariff has proven to be the best way to get quick movement in renewable energy development and create a lot of jobs," said Indiana state Rep. Matt Pierce (D), who has introduced a feed-in tariff proposal.
While Inslee and Delahunt's proposal would award states that adopt rates set by DOE and the Federal Energy Regulatory Commission, national feed-in tariffs have been criticized as an encroachment on states' rights to approve their own rates.
Gainesville, Fla., imposed the nation's first solar feed-in tariff in March, offering owners of new photovoltaic systems 32 cents per kilowatt-hour of electricity produced over the next 20 years.
The Edison Electric Institute's Owens, who argued against a national feed-in tariff, said the policy might be better implemented at the local and regional level, instead of coming from Washington.
"The city of Gainesville has benefited immensely through job creation," Owens said, such as through the millions of dollars in solar investments many anticipate as a result of the financial certainty offered by the renewable contracts.
Meanwhile, South Dakota's Public Utilities Commission is taking public comments on policies to support more wind development through rates that would reflect utilities' avoided costs, falling short of incentives offered by full feed-in tariffs.
Michigan became the first state to consider European-style feed-in tariffs with state Rep. Kathleen Law's (D) "Renewable Energy Sources Act" in September 2007. Law's bill was presented later that year at a National Caucus of Environmental Legislators meeting and became the inspiration for similar proposals in Illinois, Rhode Island and Indiana.
"Indiana has been so far behind the eight ball on renewable energy," said Pierce, whose bill died in committee without a vote. He said one of the biggest challenges was that so many lawmakers are unfamiliar with feed-in tariffs.
"Some have absolutely no idea what I'm talking about," Pierce said. "They hear the word 'tariff' and they think I want to tax something. ... Tariff equals tax or trade barrier to them."
'Worst name in the business'
Woolsey referred to "feed-in tariff" as "the worst name in the business." Others complain the term conjures up the idea of levying taxes on imported cattle feed.
Some have proposed calling them "advanced renewable energy payments" or "renewable buybacks," but for now, lawmakers are stuck with "feed-in tariffs," which was drawn from the German word for "electricity feeding-in law."
Pierce said he is planning to introduce another feed-in tariff bill in the 2010 session, by which time he suspects several more cities will have passed or considered feed-in tariffs. Being able to point to proven models, he said, will be important to gaining lawmaker support.