October 15, 2011

Feed in tariffs: Investing in a renewable energy future

Clean energy skeptics have seized on the failure of Solyndra to argue that scaling up renewable sources is a pipe dream.

They should visit Germany.

In the first quarter of 2011, Germany’s renewable energy output accounted for 19.2 percent of its total electricity consumption. Germany installed more solar PV in 2010 than the whole rest of the world and is well on its way to meeting the target of 35 percent of its electricity coming from renewables by 2020. And, in 2010, almost 370,000 people were employed in the renewable energy sector.

So how does Germany gets lots of clean energy and green jobs?

The key to this success is an incentive called a feed-in-tariff. Under a feed-in-tariff, renewable energy generators are paid a set price for the electricity that they produce. The cost paid for renewable energy generation with a feed-in-tariff can be a fixed, predetermined price independent of market swings. A fixed price provides stable conditions for investors and can, in turn, lead to lower project-financing costs. In addition, any renewable energy generator, including homeowners, farmers, small business owners, and private investors, can make money by generating renewable energy. Deutsche Bank recently named Germany’s feed in tariff as the best policy for renewable energy.

Japan and China also recently adopted a feed-in-tariff for solar energy. China already has a feed-in-tariff for wind energy and in 2010, it installed 3.4 times the amount of wind energy installed in the U.S. The adoption of feed-in-tariffs in these heavily industrialized countries shows the great potential for renewable energy development.

The idea of a feed-in-tariff is not foreign to the U.S. In 1978, President Jimmy Carter signed the National Energy Act, whose purpose was to encourage energy conservation and the development of new energy resources, including renewables. Included in the National Energy Act was the Public Utility Regulatory Policy Act, which contained a provision that required utilities to purchase electricity from producers at a set cost. This Act was the first instance of a feed-in-tariff.

So far, twenty-three states have considered feed-in-tariff legislation or regulation. In 2009, Gainesville, Florida passed the nation’s first solar feed in tariff. Gainesville residents that install photovoltaic panels on their roofs will receive 32 cents a kilowatt-hour when they produce energy. The program was so successful that it has been fully subscribed and new applicants will have to wait until January 2012 to apply.

Contrary to critics' claims, the renewable energy sector in the U.S. is thriving and has great potential. This year renewable energy production in the U.S. surpassed nuclear energy. During the first half of 2011, renewables accounted for over 12 percent of total energy production and provided almost 18 percent more energy than nuclear power. Of this amount, solar accounted for only 1.22 percent. The guaranteed demand and market stability provided by a feed-in-tariff could meaningfully boost solar production and overall renewable energy production, bringing us a big step forward towards a clean energy future.

If other countries can race toward this future, the U.S. sure can.


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