11/11/2015

NREL:StateandLocalGovernmentsFeedInTariffs
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FeedInTariffs
Afeedintariff(FIT)isanenergysupplypolicythatpromotestherapiddeploymentofrenewableenergyresources.AFIToffersaguaranteeofpayments
torenewableenergydevelopersfortheelectricitytheyproduce.Paymentscanbecomposedofelectricityaloneorofelectricitybundledwithrenewable
energycertificates.Thesepaymentsaregenerallyawardedaslongtermcontractssetoveraperiodof1520years.
FITpoliciesaresuccessfularoundtheworld,notablyinEurope.CurrentlytherearesixU.S.states(California,Hawaii,Maine,Oregon,Vermont,and
Washington)thatmandateFITsorsimilarprograms.AfewotherstatesalsohaveutilitieswithvoluntaryFITs.ThereisgrowinginterestinFITprograms
intheUnitedStatesespeciallyasevidencemountsabouttheireffectivenessasframeworkforpromotingrenewableenergydevelopmentandjobcreation.

Background
FITpoliciescanbeimplementedtosupportallrenewabletechnologiesincluding:
Wind
Photovoltaics(PV)
Solarthermal
Geothermal
Biogas
Biomass
Fuelcells
Tidalandwavepower.
Solongasthepaymentlevelsaredifferentiatedappropriately,FITpoliciescanincreasedevelopmentinanumberofdifferenttechnologytypesovera
widegeographicarea.Atthesametime,theycancontributetolocaljobcreationandincreasedcleanenergydevelopmentinavarietyofdifferent
technologysectors.
FITpoliciesaresuccessfularoundtheworld,notablyinEurope.CurrentlytherearesixU.S.states(California,Hawaii,Maine,Oregon,Vermont,and
Washington)thatmandateFITsorsimilarprograms.AfewotherstatesalsohaveutilitieswithvoluntaryFITs.ThereisgrowinginterestinFITprograms
intheUnitedStates,especiallyasevidencemountsabouttheireffectivenessasframeworkforpromotingrenewableenergydevelopmentandjobcreation.

Benefits
SomeofthebenefitsandimpactsofFITpoliciesinclude:
TherapidrenewableenergydevelopmentseeninjurisdictionswithFITpolicieshashelpedreducetheenvironmentalimpactsofelectricity
generation,whileprovidingvaluableairqualityandotherenvironmentalbenefits.
FixedpricescreatedbyFITsforrenewableenergysourcescanalsohelpstabilizeelectricityrateswhichcanenticenewbusinessandattractnew
investment.
DuetotheguaranteedtermsandlowbarrierstoentryofferedbyFITpolicies,theyhavebeenhighlysuccessfulatdrivingeconomicdevelopment
andjobcreation.
DatafromcountrieslikeGermanyandSpaindemonstratethatwelldesignedFITpoliciescanpositivelyimpactjobcreationandeconomicgrowth.
AgrowingbodyofevidencefromEuropeandOntario,CanadademonstratesthatFITpolicieshaveonaveragefosteredmorerapidREproject
developmentthanotherpolicymechanisms.

ImplementationIssues
Despitethemanybenefits,FITpoliciesposeafewchallengesaswell.
FITpoliciesdonotaddressthebarrierposedbythehighupfrontcostsofREsystems,incontrasttorebateprogramsandotherupfront"capacity
based"incentives.FITpoliciesaredesignedtoofferstablerevenuestreamsthroughlongtermpurchasecontracts,requiringthatthehighupfront
costsbeamortizedoveralongperiodoftime.

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WelldesignedFITpoliciesrequireasignificantupfrontadministrativecommitmenttodesignthepolicyandtoestablishFITpaymentsbasedon
thelevelizedcostofrenewableenergygeneration.DetailedanalysesontechnologycostandresourcequalityareneededtoensureFITpaymentsare
adequatetoguaranteecostrecoverywithoutleadingtowindfallprofits.
FITpoliciesdesignedtoincludeguaranteedgridinterconnection,regardlessoflocationonthegrid,couldleadtolessthanoptimalprojectsiting.
Accordingly,ifprojectsaresitedfarfromloadcentersortransmissionordistributionlines,interconnectioncostsincrease.Thisputsupward
pressureonpolicycosts.However,thischallengecanbelargelyovercomeifFITpoliciesencouragesitingprojectsnearloadcentersbycreatingan
incentiveeitherabonusorahigherpricebasedonhigherspotmarketpricesorifthepoliciesrequiredeveloperstobearaportion,ifnotthe
entirety,ofthecostsofgridconnection.
Duetochangesintechnologycostsandmarketpricesovertime,FITpoliciesmustbeadjustedperiodicallytoaccountforthesechanges.
Accountingforchangesintechnologycostsaccuratelyremainsachallenge.Changingpaymentlevelstoooftencanbeundesirableaswell,asit
createsinvestoruncertaintyandincreasesoverallmarketrisk.Onewaytoresolvethisissueistoadjustthepolicythroughatariffdegression,where
theFITpaymentsdeclinebyapredeterminedpercentageeachyear.Thiscanbecoupledwithperiodicpolicyadjustmentsthatoccureveryseveral
threetofouryears.Tobesuccessful,theseadjustmentsrequireadetailedmethodologytotrackmarketchangeseffectivelyfromyeartoyear.
Ultimately,thechallengeistoprovideaflexiblepolicyframeworkwithoutjeopardizinginvestorconfidence.

DesignBestPractices
ManysuccessfulFITpoliciesbasethepricesofferedtosuppliersonthelevelizedcostofrenewableenergygenerationtoensureareasonablerateof
return.Otherdesignbestpracticesinclude:
Offeringlongterm,musttakecontracts
DifferentiatingFITpricesbytechnologytype,projectsize,andresourcequality
IncludingadesignfeaturethatincorporatesanincrementaldecreaseintheFITpricesovertimetoencourageinnovationandacceleratethepaceof
deployment
Incorporatingthecostsofthepolicyintotheelectricityratebase
Minimizingtransactioncostsbyprovidingstreamlinedadministrativeprocedures.

Source
TheinformationforthissummaryaboutFITscomesfromanNRELtechnicalreport,StateCleanEnergyPoliciesAnalysisProject:AnAnalysisof
RenewableEnergyFeedinTariffsintheUnitedStates .

AdditionalResources
DescriptionsofcurrentFeedinTariffsandSimilarPrograms(source:EIA)
ThefollowingNRELtechnicalreportsprovidemoreinformationonFITs:
InnovativeFeedInTariffDesignsThatLimitPolicyCosts
RenewableEnergyCostModeling:AToolkitforEstablishingCostBasedIncentivesintheUnitedStates
Policymaker'sGuidetoFeedInTariffPolicyDesign
FeedinTariffPolicy:Design,Implementation,andRPSPolicyInteractions
Thefollowingdatabasesprovideinformationaboutpolicyimplementationandthestatusoflegislationinthestates:
DatabaseofStateIncentivesforRenewableandEfficiency
NationalConferenceofStateLegislatures'EnergyandEnvironmentLegislationTrackingDatabase
PrintableVersion
State&LocalGovernmentsHome
Blog
Education&Outreach
PolicyBasics
CommunitySolar
FeedInTariffs
RenewableEnergyRebates
RenewableFuelStandards
RenewablePortfolioStandards
SolarRequestsforProposals
ValueofSolarTariffs
Publications
RequestAssistance
TechnicalAssistanceProjectMap

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