Feed-in tariffs are tricky things.
Run them right and the result can look like Germany's solar miracle -- a country with Alaska-level sun can sprout a solar industry and develop an energy grid with a strong proportion of renewables.
Run them wrong and it looks like Spain a few years ago or the Czech Republic today. Failure to provide a cap or setting the wrong price can result in a land rush and a spate of poorly executed projects at immense cost to the taxpayer. Paul Detering, the CEO of Tioga Energy, a solar developer, has said repeatedly that FITs are flawed because they are always set at the wrong price.
Today, the California Public Utility Commission, after more than a year of consideration, unanimously approved their version of a feed-in tariff called RAM, the Renewable Auction Mechanism. It's not a classic FIT, and as such might avoid some of the pitfalls afflicting poorly administered FIT programs.
The program is intended to drive small to mid-sized renewable energy development and requires investor-owned California utilities to purchase electricity from solar and other renewable energy systems from 1.5 megawatts to 20 megawatts in size. Here's a link to the CPUC decision.
The solar industry and its advocates love the decision:
"This approval is a monumental validation for the wholesale distribution solar market in California. Its a win-win for all of California: it accelerates California's progress towards RPS goals, protects its utility ratepayers with a market-driven, highly competitive process and rewards developers that can demonstrate viable, cost effective project models. Not to mention the local tax revenues gained and skilled green jobs created. This is a momentum building segue for the industry moving into 2011," according to Stephen Smith of the Solvida Energy Group.
Adam Browning of Vote Solar said this in a just-issued press release: “This is an elegant program that will drive significant new development in small to mid-sized renewables in California. The approach builds on best practices to deliver cost-effective solar on-line quickly, in a way that delivers sustained value to ratepayers. Building on California's 80,000 behind-the-meter solar systems and the Renewable Portfolio Standard that is driving large-scale projects, this program pioneers a new approach to wholesale distributed generation. At scale, solar is more cost-effective than the fossil fuel alternatives. All it takes is the right market mechanism to turn the opportunity into reality, and we thank the Commission and Commission staff for their vision,” said Adam Browning, Executive Director of Vote Solar, a grassroots non-profit organization working to make solar a mainstream American energy resource.
“The passage of the Renewable Auction Mechanism by the CPUC today marks the beginning of a new era for the solar industry in the United States and will allow us to reduce air pollution, increase energy independence and create new green jobs much more quickly. We are very grateful to the CPUC staff and commissioners for their hard work to develop this program over the last two years” said David Hochschild, Vice President at Solaria, a solar manufacturer.
"The RAM will bring California ratepayers more clean energy bang for the buck and promises good, green jobs where they are needed most," said CPUC Commissioner Nancy E. Ryan.
Detering of Tioga said, "Very positive for Tioga, the industry and California! This is great news. This program enables the most logical, fastest way to deploy solar generation -- close to the load where it is needed and in a way that drives cost down. It also means that California will regain it's leading position in solar over Ontario, Canada."
“This program is a thoughtful design that helps keep the state on track with its renewable energy obligations and goals but in a cost-effective and pragmatic way. We are very excited about the significant opportunity it provides solar developers,” said Polly Shaw, Director of External Relations for Suntech America.
The vote establishes a 1-gigawatt pilot program for power from eligible mid-sized renewable energy systems. The program requires California’s three largest investor owned utilities to hold biannual competitive auctions into which renewable developers can bid. Utilities must award contracts starting with the lowest-cost viable project and moving up in price until the megawatt requirement is reached for that round. The program will use standard terms and conditions to lower transactional costs and provide the contractual transparency needed for effective financing. To ensure project viability and realistic pricing, the program requires development security and relatively short project development. Utilities must file implementation plans in the next 60 days, and the program is expected to be operational this spring.
Shayle Kann, managing director of solar research at GTM Research, had this to say. "Overall, I'm very much in favor of the RAM program. It is a unique take on the feed-in tariff that allows for market-based pricing while still providing a long-term, stable power off-take agreement for project developers. My only major concern is whether project viability screens and deposits are sufficient to avoid the possibility of underbidding in order to win contracts."
Browning of Vote Solar believes that the RAM has stronger project security and requires a larger development security payment than other programs. He believes this will eliminate speculators and keep high-quality developers involved. There are periodic program reviews and reports to remove the speculators and make it "painful to fail." He adds that the RAM will succeed because "instead of setting a price -- it sets an outcome."