In contrast, the renewable portfolio standard (RPS) approach adopted by many states in the US offers an alternative mechanism for supporting renewable energy capacity expansion that is better suited our regulatory structure. Through market-based REC prices, it also does a better job of recognizing the economic burden that high cost renewables place on ratepayers. An in depth comparison of the two incentive structures would take more space than we have available here, but suffice it to say that some of the important differences concern ratepayer impact, the difficulty of developing a tariff structure that incentivizes generation while not overcompensating developers, market responsiveness (or lack thereof), consideration of cost reductions due to technological advance, and legal restrictions.
In the summer and fall of 2009, the Colorado PUC conducted a comprehensive survey and analysis of existing and proposed feed-in tariffs around the world. Our conclusion was that FiTs were problematic due to the concerns expressed above. It also questioned whether a FiT would prove superior to the very successful renewable and solar programs that Colorado has implemented under its RPS. That study, entitled The Application of Feed-In Tariffs and Other Incentives to Promote Renewable Energy in Colorado can be downloaded from the PUC website. Our investigation into FITs continued this summer with our own internal analysis of the legality of statewide FiTs based on FERC preemption concerns and PURPA restrictions. That analysis concluded that there are very limited circumstances under which a statewide FiT may be implemented by a state regulatory body or legislature. And, some of those circumstances are even more problematic in Colorado due to the Colorado Taxpayer Bill of Rights commonly known as the TABOR amendment. I should point out that individual utilities as well as coops and muni utilities are free to implement a FiT as they desire. What is at issue here is whether or not a state body may order a FiT for any class of utilities. Our assessment of a state's limited authority to implement a FiT was, coincidentally, affirmed by a recent FERC decision pursuant to a California PUC case. A fact sheet describing the essential elements of that case is available here.
Perhaps more important than the legality of FiTs is whether or not they are the most effective and efficient way of fostering renewable energy generation. It is clear to me that they are not. Aside from the concerns with ratepayer impact and market responsiveness already discussed, markets in which they have been implemented have been subjected to boom and bust cycles (the highly touted Gainesville, FL program is a prime example). FiTs are simply not the way to develop a sustainable renewable industry. From a policy perspective, one must determine if the goal of an incentive program is to guarantee a rate of return to a generator (as with FiT programs) or to simply compensate renewable generators for their above market costs of doing the right thing. I would argue that the latter approach is more considerate of the additional costs being shouldered by ratepayers.
It is also clear that the guaranteed RoR provided by a FiT fails to motivate the technological advance needed to bring renewables to grid parity and economic sustainability. And I am not alone in this belief. Tech entrepreneur and Sun Microsystems cofounder Vinod Khosla writes:
"Every time there is a carve-out for some technology or deployment method, a market is being warped, and suddenly the chosen technology doesn’t need to compete and minimize cost in order to ‘win’ (case in point, solar feed-in tariffs in Europe, and more recently, Oregon). Consumers lose and excluded technology development slows down.” (Greentech Media, 16Jul2010)
Dr. Petri Konttinen also writes that FiTs are “successful in the short term but risk creating false and unsustainable markets vulnerable to speculators.” (07Jun2010)
The bottom line in this message should be that you cannot build a sustainable energy infrastructure on a foundation of unsustainable economics.
Unfortunately, proponents of FiTs seem totally unconcerned with any of the difficulties I've discussed. I was recently invited to participate in a panel discussion of feed-in tariffs to be held in Boulder, Colorado on July 22 organized by a California based advocacy group called the FIT Coalition. Though initially reluctant, I was convinced to participate by the panel moderator because he felt that I could bring some balance to the discussion, particularly with regard to the regulatory and legal considerations. It turns out that my initial reluctance was well founded as the workshop organizers ordered the moderator to "uninvite" me because they did not want an opposing viewpoint. The FiT intelligentsia, it seems, can be every bit as despotic as the antirenewable orthodoxy they condemn. Whether they simply fear alternative viewpoints or are defending a pecuniary interest, I'm not sure. Probably both. So, given that I won't have an opportunity to give the brief presentation I developed, I am posting the slide presentation here for you to view. Of course, you won't have the benefit of the comments that expand on the bullet points, but for the most part you can probably read between the lines.