Feed-In Tariffs: A Good FIT for the U.S. Solar Market

Posted on August 7th, 2012 by
   

The Great East Japan Earthquake and Tsunami of March 2011 was one of the worst natural disasters of modern times. Consequent meltdowns and explosions at the Fukushima Daiichi nuclear power station have left the Japanese people with deep concern about the safety of nuclear power, leading to a fundamental rethinking of their nation’s energy mix. As a result, Japan is now moving toward reduced reliance on nuclear power and much greater use of renewable energy.

On July 1, the Japanese government enacted a solar Feed-in Tariff, or “FIT,” enabling people who generate solar power to sell that renewable energy back to the grid at a fixed price – a price, in fact, about triple the rate paid by industrial users of Japan’s utility power. Industry analysts expect this new FIT program to stimulate investment of up to $9.6 billion in new solar installations throughout Japan while adding gigawatts of renewable energy capacity.

This new incentive has Japan poised to surpass Italy as the world’s second-largest market for solar power, and many believe Japan will even eclipse Germany as No.1.

You might be scratching your head at this point, thinking, “Why are Japan, Italy and Germany ahead of the U.S. in adopting solar power?”

Much of the answer lies in policy: The U.S. relies on tax breaks to incentivize solar, while the rest of the world uses some variation of the FIT program. The difference is key. A FIT program rewards people who invest in solar energy according to how much power they generate, in kilowatt hours (kWh). A tax incentive rewards solar adopters according to how much money they spent on their system.

Under a FIT, the system owner gets paid only for the electricity they produce, thus creating a strong disincentive against technologies that are unproven or don’t perform well over time. The U.S. tax incentive system, by contrast, doesn’t reward the performance of a system at all — only the cost.

America’s investment tax credit works poorly for two reasons. First, not everyone who wants the benefits of clean, renewable energy can benefit from tax incentives. Second, since U.S. tax credits are based on the system’s cost, higher system prices are rewarded as a matter of policy — doing little to make solar energy more affordable for consumers.

“The U.S. needs a system — like a feed-in-tariff — that rewards performance,” said Tom Dyer, a 40-year industry veteran who recently retired as Kyocera Solar, Inc.’s vice president. “This would promote systems that are more likely to produce optimum power for decades, as opposed to incentivizing financial investment and de-emphasizing power production.”

Already, in Hawaii and parts of California, it’s as economical to install solar as it is to buy power from the grid, according to Dyer, which is known as grid parity. Grid parity is key to making solar energy more widely available, and the FIT program offers a fast track to get there.

In addition to providing solar product manufacturers with an incentive to improve system quality and long-term reliability, FITs can be designed to emphasize small installations close to home, rather than large utility-scale projects. This enables homeowners and business owners, the individual ratepayers, to benefit from “micro” power plants on rooftops throughout their city, producing power where it is used. This form of distributed generation helps to stabilize the grid, promotes efficiency by reducing transmission “line losses,” and reduces the need to build costly new transmission lines. And by using existing infrastructure – the rooftops of buildings where we already live and work – distributed generation won’t disturb protected lands or wildlife.

Europe and Japan have demonstrated that when a solar incentive program is based on actual power generation, owners get paid more for installing better-performing systems. If the system doesn’t produce energy, the owner doesn’t get paid. The investment and liability all rest on the owner of the system. And FITs can encourage the deployment of solar installations very quickly – hundreds can be installed at once, distributing economic development throughout many communities in the same way that distributed generation provides power “close to home.”

Because of these obvious benefits, some U.S. municipal utilities are actually creating FIT programs of their own on a voluntary basis. So why is there no active state-wide or national FIT program for the rest of America?

The problem seems to lie in a lack of understanding about the benefits of the FIT incentive model. Adopting a national FIT program will require utility companies and policymakers to undergo a paradigm shift. We are accustomed to thinking of wholesale energy in rigid terms, produced only by a central power plant in the middle of nowhere. National or state-wide FIT programs would make it more common for a collection of much smaller systems, integrated seamlessly into rooftops and parking lots, to power city blocks. However, getting there will require a new mentality that allows us to view roof-tops and parking lots as sites for small power plants.

FITs allow entire communities to “democratize” their energy production. Anybody can be a power producer. You and I can establish our own solar electricity generation plant on top of our own roofs and realize instant economic benefits. In Germany, church parishioners band together to install their own mini PV farms and sell the energy back to the community. It allows everybody to participate in producing renewable energy — not just those who are hungry for tax incentives.

People have heard that FITs make solar power too expensive because the contracted price paid for solar energy is too high, but this simply isn’t true. Those arguments consider only the nominal cost of electricity, ignoring the huge expense of importing power from outside the community through transmission lines that can cost hundreds of millions of dollars. FITs can delay, or in some cases prevent, the need for new transmission lines and bigger central power plants altogether.

To accurately judge the benefits of a FIT, we’ll need to consider the value of the kilowatt hour produced at the point of use. This will reveal the savings to ratepayers in the community that result from producing electricity right where it is used. With a FIT, the renewable energy is free – consumers only buy the ability to produce it.

The people of Japan appear to be on a fast track to national solar deployment, but they’re not alone. Nations all over the globe are investing in FITs to benefit from clean, renewable power that is locally produced, and generating thousands of jobs.

Isn’t it time for the U.S. to get FIT, too?

 

The opinions expressed in this article are solely those of  the author  Cecilia Aguillon, Kyocera Solar, Inc. Cecilia Aguillon is director of market development and government policy for Kyocera Solar, Inc., recognized as a world-leading supplier of solar electric energy products since 1975.

 

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