[bouldercouncilhotline] Hotline: FW: Feed-in Tariffs

[kohls at bouldercolorado.gov]

Sender: Wilson, Ken

Craig,

As you know, Boulder is very interested in increasing the amount of renewable energy that feeds the city.  I would like to see Xcel support a good bill to have an unbiased study of Feed-in-Tariffs (FITs) for Colorado.  I have not read the current bill that is before the legislature to be able to judge whether it is promoting an unbiased study or not.  Instead of just opposing this bill, I would like to see Xcel work with the bill's sponsor to either revise it or submit a substitute bill that would charter a study to give the state a clear picture of the advantages and disadvantages of a FIT system for Colorado.  Perhaps the CU business school in cooperation with NREL could do this study.  It should look at the economic benefits and the economic costs of FITs, in comparison with other types of programs such as Power Purchase Agreements and Renewable Energy Credit (REC)/Rebate programs.  I have heard knowledgable voices on both sides of the FIT argument.  One side says it creates jobs in renewable energy businesses and the other side says that it kills jobs in the overall job market with higher rates for electricity.  It would be great to have an unbiased evaluation of all the factors, specifically for Colorado.

I would also suggest that such a study go further.  Up until recently the Xcel Solar Rewards program has been a good model of how to manage incentive money in a reasonable way.  The REC/Rebate incentives started high when panel prices were high and have been reduced in a regular way over the past two years as panel prices have fallen.  Last week Xcel proposed a significant change in the REC/Rebate incentives that has thrown the small solar industry into panic.  The gradual decrease in REC/Rebate incentives has come to a floor since the initial law set the Rebate price at $2.00 per watt.  When Xcel lowered the REC/Rebate total price to $2.01, there was a run on the bank, with the total allocation getting snapped up within hours.  New projects are not being accepted and the industry is looking at layoffs in the not too distant future.  This is not a good situation and I hope it can be resolved quickly, with perhaps an interim solution as the parties take some time to sort out a long term strategy.  The current problem suggests that we do not fully understand the best way to distribute incentives from a limited pot of money.  It also suggests that we should take action to change an existing program in a more predictable way.

I would like to suggest that the independent FIT study look more broadly at alternative ways to incentivize renewable energy in Colorado.  For example, would we get the most renewable energy with a program that spread the available money thinly to a wide number of projects, or spread money deeply to a smaller number of projects.  And what would the economic benefits to the state be for either method?  Would the state benefit economically if the 2% cap was raised to 3% or 4% for renewable energy?  And what would the impact be on rate payers and the overall economy?  Should we fund more small projects, or larger projects?

The paper you attached, which I included in this response so others can see it, lays out some issues that need more study and specifically study for Colorado.  I have seen other papers that argue pretty convincingly in favor of FITs using the same basic information.  While I have managed PhD economists during my career, I am an engineer and not an economist and would like some help in sorting out the pros and cons for different ways of managing incentives for renewables.

While Xcel has supported the 30% Renewable Energy Standard and the 2% fund that we all pay for the incremental cost of renewables, I think Xcel needs to continue to push the envelope in helping Colorado to be a leader in renewable energy.  We are blessed with great solar and wind resources in this state and we need to take full advantage of them.

I appreciate Xcel honestly saying that it is not supporting the current bill, and why.  I hope that Xcel can support a modified bill or an alternative bill that will give us the information we need to make the best decisions.

Sincerely,

Ken Wilson
Deputy Mayor, City of Boulder

________________________________
From: Eicher, Craig L [Craig.L.Eicher at xcelenergy.com]
Sent: Wednesday, February 23, 2011 10:58 AM
To: Eicher, Craig L
Subject: Feed-in Tariffs

Dear community leader in Boulder County

Today, a coalition of Colorado’s electric energy providers, including Xcel Energy, the rural electric coops and municipal electric utilities, is formally opposing House Bill 11-1228, called Economic Development Through Distributed Generation, which would study a statewide feed-in tariff. A feed-in tariff would establish a mandatory price that a utility would pay for distributed solar energy generation. That price would be much higher than the normal wholesale power price. The reasons for opposing this concept are numerous and outlined in the first attachment.

I’ve also attached an article that outlines the challenges of both the European FIT model as well as with the few FITs established in the U.S. Finally, below is a recent blog article at www.solsystemscompany.com<http://www.solsystemscompany.com/>.

Xcel Energy remains committed to being a leader in renewable energy through one of the most aggressive renewable energy standards in the nation – 30 percent renewable energy by 2020. We strongly believe that feed-in tariffs would erode that commitment and drive up prices for customers. Beyond that, the federal government, through the Federal Energy Regulatory Commission, appears to have given FITs an uncertain future.

Please let me know if you have any questions.

Craig Eicher
Xcel Energy | Responsible By Nature
Area Manager, Boulder Region
2655 N 63rd St   Boulder, CO 80301
P: 303-245-2254    C: 303-827-4943    F: 303-245-2292
E: craig.l.eicher at xcelenergy.com<mailto:craig.l.eicher at xcelenergy.com>
________________________________________________________
XcelEnergy.com<http://xcelenergy.com/>   Facebook.com/XcelEnergy<http://facebook.com/XcelEnergy>   Twitter.com/XcelEnergy<http://twitter.com/XcelEnergy> <http://twitter.com/XcelEnergy>



FERC Rulings on Solar Feed in-Tariffs

Solar feed-in tariffs (FIT) have served as one of the primary policy tools for increasing the deployment of solar energy in several countries. Yet a recent ruling by the Federal Energy Regulatory Commission (FERC) makes the future of solar FITs in the U.S. uncertain.

A feed in tariff is basically a subscription program where the owner of a solar system can sell their electricity at a fixed rate to utilities. The utilities are required to purchase the solar electricity at this determined rate, which is higher than the normal wholesale electricity price. Feed-in tariffs, highlighted in places such as Canada and Germany, have the potential to be great for solar deployment because they guarantee a certain cash flow, thus minimizing the risk for those financing solar.

However, there also drawbacks to FITs. In the U.S., the success or failure of such a policy would depend on the ability of the state legislature to determine the correct fixed rate for solar electricity that incentivizes solar without oversubsidizing it. This fixed rate contract for purchasing electricity is more dependent on government funding and consistent political will than market forces.

Regardless of whether you agree more strongly with the advantages or the disadvantages of a solar FIT, it is important to note the FERC ruling on FITs this past year and its likely consequences. On July 15th of last year, the interstate electricity regulators at FERC affirmed the fact that they had exclusive authority over wholesale electricity sales.

The ruling was necessary because the California Legislature in 2007 established a feed-in tariff program<http://www.greentechmedia.com/articles/read/ferc-defines-states-feed-in-tariff-authority/> for small combined heat and power systems in the state. Some utilities protested this program under the language of the Federal Power Act. FERC’s ruling was originally confusing, although seemed to support the belief that state legislatures are severely limited in their ability to mandate premium, fixed-price requirements.

This ruling was controversial and eventually led to a clarification by FERC in October 2010 that states do have the authority for certain feed-in tariffs when they set their rates through the Public Utilities Regulatory Act (PURPA). A spokesperson explained that since utilities may be mandated to buy power from different sources of electricity, a multi-tiered approach is admissible where states can calculate the utilities’ avoided cost for each separate electricity source.

Moving forward, it is unclear whether these FERC rulings will encourage or discourage more state FITs. Renewable policy experts have noted that the FIT structure allowed under these FERC rulings does not really resemble European FITs and has limited ability to dramatically increase renewable energy generation.

One of the options for FITs that FERC explicitly allows is for a state to establish a targeted range (for example for PV systems between 10 kW and 50 kW only), and let the market set the price. This is significant because it highlights FERC’s preference towards market solutions because they have the potential to be self-correcting and continually incentivize solar cost reductions.

A market solution for solar deployment that already exists is a solar “carve out “in a state’s RPS, which creates Solar Renewable Energy Credits or SRECs<http://www.solsystemscompany.com/what-are-srecs>. Trading SRECs allows the market to dictate an appropriate price based on a state’s alternative compliance penalty and supply and demand factors.

Many U.S. states already have solar carve outs and healthy SREC markets. In fact, a FERC spokesperson indicated that Renewable Energy Credits (RECs) may be needed in addition a FIT to get to sufficient levels of renewable energy deployment. States previously considering FITs can look towards SRECs as a favored policy tool for enabling solar deployment and adopt legislation accordingly.
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