Nationwide Renewable Energy Feed-in Tariffs

It seems that every conversation about the future of distributed solar PV and wind power generation is prefaced with comments about how far the technologies have to go. As of 2007, Renewable energy sources as a whole (excluding large hydropower) account for only 3.4% of global electricity generation, and implementation is always increasing. How long will it be before renewable energy sources achieve standing and cost equal to that of coal and nuclear energy? What might accelerate adoption of these relatively nascent technologies? Around the world (and around the United States), renewable energy feed-in tariff policies are a popular answer.

Renewable energy feed-in tariffs (also known as) are policy implementations that allow small-scale electricity producers (e.g. homeowners who install solar panels on their roof, owners of lone wind turbines) to sell their electricity to the grid at a premium. Feed-in tariffs may stand to help redefine electricity generation, but the basic mechanism of such policies is simple: Large utilities enter into long-term contracts with small energy producers, guaranteeing payment rates per kWh based on the technologies used to generate energy. Logically, producers are generally paid more per kWh generated by relatively expensive, developing technologies (i.e. there are better rates for energy from solar PVs than from wind, a relatively cheap and efficient technology). Tiered payment levels serve to balance investments in different technologies, which include not just solar PV and wind microgeneration, but also geothermal, small-scale hydroelectric, and biomass combustion.

A table of feed-in tariff rates (in Canadian dollars) from the Ontario Power Authority

One of the driving motivations for implementing feed-in tariff policies is the goal of grid parity, the point at which electricity from renewables is as cheap (or cheaper) than energy from conventional sources. Thanks to potential limits of technology or manufacturing resource limitations, grid parity can’t be guaranteed, but there are good reasons to expect the costs of renewables to continue falling. The concept of grid parity has relative real-world implications, however, depending on location and scope. To elaborate, the cost of conventional grid electricity generally varies between tropical islands (which often rely on expensive oil) and inland American states (which more heavily rely on cheap coal), while renewable energy sources such as solar can make more or less economic sense depending on latitude or topography. Consequently, grid parity has actually been achieved in places like Hawaii, while some cloudier regions such as Germany and the UK require more concerted efforts over time to make similar accomplishments.

Through incentivizing the adoption of new electricity-generation technologies by the general population, feed-in tariffs handily manage to promote the development of more efficient renewable energy sources, enhanced grid parity, and potential systems of decentralized energy production. Some may protest the marginally increased electricity rates the average consumer pays to compensate small producers, but they will decrease over time since feed-in tariffs are generally intended to decrease in value as the technologies used become more commonplace. Already required in every state by the Energy Policy Act of 2005, net-metering programs allow small producers to sell back electricity generated in excess of their own utilization. Barring producers in areas with substantial energy production potentials, net-metering programs offer much less compelling economic incentives than feed-in tariffs. While some state and local-level efforts have been made to incorporate feed-in tariffs, we need to adopt a nationwide policy, ideally with high caps set for energy feed-in so that growth and investment can continue for many years to come.