In sunny Southern California, no discussion of sustainability would be complete without mention of solar power. At the recent Los Angeles Business Council 2010 Sustainability Summit, which the Alliance attended as a Cooperating Organization, a full panel was devoted to renewable energy, both solar and wind.
The panel opened with a talk on feed-in tariffs (FiTs), which are guaranteed rates for excess on-site renewable power generation to be sold back to the grid (equivalent to allowing a utility customer’s electric meter to run negative and produce income for the customer). The presentation was given by J. R. DeShazo, Professor of Public Policy and Director of the UCLA Luskin Center for Innovation. As an author of Designing an Effective Feed-in Tariff for Greater Los Angeles, a study recently conducted in partnership with the LA Business Council, DeShazo was able to give an in-depth review of the FiT value proposition and of important variables impacting program success.
Los Angeles has aggressive renewable generation goals, aiming for 20% renewable power this year and 40% by 2020. Mayor Antonio Villaraigosa has also set a goal of eliminating coal from the generation mix by 2020. However, achieving these goals will be a challenge. Today, only 14% of the city’s generation mix is from renewable sources, falling significantly short of the 20% renewable portfolio standard (RPS) target. To help close the gap, DeShazo’s study recommends implementing a carefully designed FiT, focusing on large multifamily, commercial, and institutional buildings with plenty of roof space available for solar. The study found that such a program would contribute approximately 3% to the city’s RPS. Beyond this contribution, a well-designed feed-in tariff has several significant benefits :
- Create local jobs
- Equipment manufacturing and assembly
- Professional services
- Installation
- Monitoring and maintenance over the solar panels’ 20+ year lifetime
- Reduces transmission needs and costs (development of new transmission lines takes years and is very costly and litigious)
- Signals a commitment to attract cleantech businesses
- Saves ratepayer money
At the same time, it is essential to get the details right. Here are the variables DeShazo noted as being of particular importance:
- Tariff structure – DeShazo recommended using a cost recovery plus reasonable rate of return structure
- Program targets – Commercial targets tend to be best due to larger roof space available, which improves cost effectiveness
- Program size – The program needs to be large enough to exceed fixed costs, and should be large enough to attract manufacturers to the region; DeShazo recommended a 500 MW program cap
- Phase-in period – DeShazo recommended a long phase-in period, such as dividing a 500 MW total cap into equal parts over a 10 year period
- Application & implementation – The process should be timely, transparent, simple, and fair to customers
To start with, the study recommends the following tariff structure and annual targets:
- Commercial sector – 40 MW installed each year, with a $0.22-$0.16/kWh FiT
- Residential sector – 5 MW installed each year, with a $0.34-$0.18/kWh FiT
- Non-profit/Government – 5 MW installed each year, with $0.28-$0.18/kWh FiT
While these tariffs are lower than elsewhere, there is more sun in Los Angeles than in some other areas, such as Germany, that have successfully implemented FiTs; as a result, a lower FiT rate can still produce a similar rate of return. DeShazo also emphasized the importance of reevaluating the FiT every one or two years, to enable the program to be tweaked in light of changing market conditions.
In the panel that followed, ARB Chairman Mary Nichols agreed with DeShazo about the importance of maintaining flexibility in implementation, even as governments and corporations adopt and remain committed to ambitious goals. She also noted that in her experience there is often confusion about policy goals, which makes implementation design difficult – is the goal of renewable policy to develop and support a local cleantech industry? To improve air quality? To mitigate climate change? Different implementation approaches flow from each of these related yet distinct goals.
What do you think? Are FiTs a good idea, or is the long term commitment too big of a liability for utilities (and ultimately their ratepayers)? And which policy goals are most important to you? Do you think FiTs are the best way to achieve those goals? Might other types of incentives be better?
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