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Renewable Energy Vision
Expert analysis on the most pressing issues facing the renewable energy sector in the U.S and abroad from ACORE staff, members and supporters.

Making U.S. Energy Policy FiT

Published on 23 Feb 2015  |   Written by    |  

Despite the rapid growth of renewable energy in the United States, pro-renewable policy support in the country is erratic. The industry is plagued by expiring tax credits, shifting policy landscapes, and delayed permits. This means that the renewable energy industry does not have a fighting chance to grow and impact the way we responsibly produce and consume energy. But there is a solution, and all we have to do is look across the pond to find it.

Feed-in tariff (FiT) policies are a relatively underutilized policy mechanism in the United States, but they’ve been much more successful in Europe. FiTs are economic policies designed to incentivize investment in renewable energy technologies. While it varies by location, a FiT is quite straight forward. An individual or a business invests in a renewable energy installation on their property and generates electricity for their community. These small-scale producers enter into a long-term contract with utilities, who distribute the electricity to consumers. In return, the producer is paid a premium price for the electricity they feed into the grid, meaning that anyone can profit from the policy all year round with zero work input.

Gabriel FiT Picture 1
From virtually  0% to 20% in 10 years. FiT policies in Europe and Germany have helped to make renewables major contenders in the energy production industry. Source: http://bit.ly/1DKYrvG

For proof of the power of feed-in tariffs, one need only look to Germany. Having lived there for several years and personally benefitted from the German FiT policy, I can say that once in place it is an exponential catalyzer for the renewable energy industry. Furthermore, once you see your monthly electricity bill plummet to next-to-nothing you really do start to appreciate the benefits of FiT.

FiTs have helped Germany become the world leader in solar energy production, even though the country receives the same amount of sunlight each year as Alaska. By introducing FiT policies in the late 1990’s, Germany has been able to encourage a steady growth of independent energy producers. More than 55% of the installed renewable energy capacity in Germany is owned by private individuals, totaling more than $100 billion of private investment into the renewable energy industry. This empowers everyday citizens and gives them a role in the nation’s energy policy, as opposed to the usual conversation between regulators, utilities, and generators.

These advances have turned Germany into a world-leader in renewable energy deployment. In the early 2000’s, the share of renewable energy production as a percentage of total production was at 6%. Today it is at 28%, with a set goal of 45% by 2025, and 80% by 2050 (However, many speculate that given the unprecedented growth of renewable energy in Germany, it would be able to reach 100% by 2050). It is the achievement of these mind-bending numbers that has resulted in Germany being lauded as “the world’s first major renewable energy economy”. And it is because of FiT policies that it has been able to achieve this.

Nevertheless, there has been a cost associated with this, and by no means has it been cheap. However it is hard to find many people in Germany who wouldn’t agree that the benefits are worth the cost, including that of a decreasing reliance on foreign energy supplies. And, lets not forget that part of FiT is investing in the economy, as the premium paid for renewable energies almost always gets re-invested to make cheaper and more efficient renewable energy technologies. Implementing FiT policies is therefore a long-term policy with the dividends paid on it growing over time.

So how can the US benefit from Germany’s experience? There is no doubt about the effectiveness of FiT policies. Most western European countries have some form of the policy in place, and it has helped to jump-start the industry from being a ‘niche’ market to being a viable alternative in the public, private, and industrial sectors.

Blauw FiT Blog 2
Implementing regional FiT policies can help make these projections by the Energy Information Agency become a reality. Source: http://1.usa.gov/1Bf5Gf3

FiT policies were actually invented in the US during Carter’s administration, however, they did not survive long in the US due to the growth of cheap foreign oil. Nevertheless, renewable energy is on the rise in the U.S. And the popularity of renewables is clear. In 2013, solar power accounted for 40% of the newly installed energy in the US. With these industries growing and creating jobs, it only makes sense to provide them long-term policy certainty that feed-in tariffs can provide

Currently the only major federal pro-renewable policies in the U.S. are tax incentives. While these tax incentives are beneficial, their short lifespans and constant cycle of expiration-and-extension don’t allow for the long-term investment that renewables need. Now that the US is becoming the biggest energy producer in the world, it makes sense to also take the lead on the energy economy of the future.

Existing concerns over the cost of implementing FiT policies, while valid, can be answered simply: invest in the future. The dividends paid on renewable energies are infinitely higher than on traditional fossil fuels, simply because they are renewable. This means that one investment will pay itself out virtually limitless. The sun wont stop shining and the wind wont stop blowing.

Empowering people to not only be a consumer, but a producer as well will create jobs, and pave the path towards energy independence. Additionally, there could be no better boost for the renewable energy industry than ensuring there is a long-term investment strategy that would help provide them tens of thousands of new customers and involved producers.

Perhaps the answer to tackling the issue in the US is to roll out a FiT policy across several states or a region in general. While some states such as California and Colorado have already implemented FiTs in the past or are currently implementing a FiT policy, the potential of empowering a wind-heavy region such as New England, or solar-intense one such as the South-West should be a priority.

In particular, California’s existing FiT policy is one of the most advanced and mature ones in the country, offering a blueprint for other states to follow. The policy applies to any public utility with more than 75,000 customers, which have to offer 10-, 15-, or 20-year contracts to independent energy producers. Almost any renewable energy technologies are eligible, as long as they don’t pass the 3 MW in maximum energy production. The rates are much more flexible than traditionally, as they are based on the “Renewable market Adjusting Tariff”. The benefits of empowering people to produce clean energy have shown themselves: California is the biggest producer of renewable energy in the US, with about 12% of total energy production coming from renewables. In addition to this the goal by 2020 is to have 33%, which is a very aggressive goal to have. However, with California’s FiT policy this goal can certainly be achieved.

More than anything, the story of California is one of hope and one from which the rest of the US states can learn from. By initially implementing a flexible FiT policy, and allowing it to develop without interruption, renewables are able to grow on their own at an exponential pace. It is therefore policies like these that encourage the adoption of renewables that make the difference between a renewables revolution and an energy evolution.

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