States try variants of feed-in tariff to help connect solar, wind power to grid

Source: Daniel Cusick, E&E reporter • Posted: Wednesday, June 20, 2012

While much of the renewable energy sector remains focused on extending federal tax credits for wind, solar and other alternative fuels, utilities and small-scale energy producers in more than a dozen states are forging ahead with programs that pay renewable energy producers a fixed rate for power they put on the grid.

The programs, known as “Clean Local Energy Accessible Now,” or CLEAN, allow mostly municipal utilities and energy producers to enter contracts guaranteeing a fixed rate for electricity sent to the grid from clean sources over a fixed period of time, usually 10 to 20 years, said John Farrell, a senior researcher for the Institute for Local Self-Reliance, or ILSR, which issued a status report on the programs.

The concept is analogous to feed-in tariff programs common to Canada and Europe, but the U.S. versions of the programs tend to be smaller in size and scope, said Farrell. In fact, the report notes, U.S. CLEAN programs owe much to the success of programs in countries like Germany, where feed-in tariffs have led to major expansions in solar power. “While late to the game, Americans are finally in the game,” states the report, published this week.

Indeed, CLEAN programs are quietly expanding across the country, from small states like Vermont and Rhode Island to large, complex electricity load centers like Southern California and Florida, the report states.

“The recent surge in popularity coincides with the recognition that on-again, off-again federal tax incentives undermine renewable energy investments,” the ILSR report states.

‘Laws of capitalism at work’

But many states and utilities have built their CLEAN programs on the larger backbone of federal incentive programs, and the programs’ results have been mixed, the report states.

In places like Gainesville, Fla., and Sacramento, Calif., CLEAN programs have leveraged significant investment by local energy providers, including thousands of homeowners and small businesses, and in turn helped generate significant amounts of power to shore up local and regional grids.

The Sacramento Municipal Utility District, for example, in 2009 offered as much as 28.5 cents per kilowatt-hour to owners of small- and medium-scale solar systems during summer “super peak” hours of 2 to 8 p.m., six days a week, with lower rates offered for non-peak times. The program, which was capped at 100 megawatts, relies on purchase contracts of between 10 and 20 years.

According to the report, nearly two-thirds of the Sacramento Municipal Utility District’s contracted projects — mostly for PV solar generation — were up and running by April of this year.

In Florida, Gainesville Regional Utilities has offered 20-year contracts to pay between 19 and 24 cents per kilowatt-hour for projects delivering between 10 kilowatts and 1 MW of solar power. The program is capped at 4 MW of production annually but has been so successful that Gainesville now ranks No. 1 in the nation for per-capita solar installations, according to ILSR.

Farrell said part of the success of CLEAN programs is linked to falling costs of solar arrays and the ease with which entry-level players, like homeowners, can shift from being net electricity consumers to being net producers. Lower costs also mean investors who finance larger projects are guaranteed a better return on investment, especially when the power they produce is sold under long-term contracts.

But as CLEAN programs mature and more energy flows to the grid, participants can expect to see lower rates offered for their solar or wind-generated electricity. “This is fundamentally the laws of capitalism at work, and that’s a good thing if it results in more energy coming from a more diverse set of sources,” Farrell said.

Some failures

Not all CLEAN programs have been as effective as Sacramento’s and Gainesville’s, however. In Maine, a state-instituted CLEAN program to promote local wind and biomass energy has fallen flat, in part due to the low rates offered for the clean energy, Farrell said.

The Maine program offered fixed payments of roughly 10 cents per kilowatt-hour, regardless of the energy source or size of the project. To date, four projects have been certified by the state Public Utilities Commission, while one project has actually been constructed.

While CLEAN programs have found favor mostly with municipally owned power companies that have greater say over where they get their electricity, a few investor-owned utilities are also entering the fray.

Consumers Energy, which serves 6 million ratepayers in Michigan, launched a CLEAN program in 2009 to buy electricity from small-scale solar providers under 12-year purchase contracts.

While the program had a modest 2 MW cap, almost all of the supply was contracted out within the first few months, prompting Consumers to expand the program last year by an additional 3 MW. Under its first- and second-quarter 2012 contracts, Consumers will pay between 23 and 26 cents per kilowatt-hour for electricity generated by solar arrays of 150 kW or less.

Farrell noted that Consumers’ CLEAN program represents just a fraction of the utility’s total generation, but said, “It’s a good example of how this kind of program can work in the Midwest, where solar energy in particular is not as big an energy source.”