Have FITs served their purpose?
Why calls for an end to feed-in tariffs are dangerous
While the main problems in the proposals for changes to German feed-in tariffs seem to have been solved, proponents of feed-in tariffs are not exactly off the hook. Indeed, we have shot ourselves in the foot by continuously speaking of grid parity as the goal of feed-in tariffs. Guess what – grid parity is here, and everyone in Germany's solar sector still wants feed-in tariffs.
Am I the only one who saw this coming? Just over a year ago, I pointed out the folly of this thinking: grid parity does not mark the beginning of an "incentiveless future" for solar. The current debate in Germany, which has now reached grid parity, proves my point. We are not talking about throwing out feed-in tariffs altogether, but merely cutting them drastically – and the solar sector is not happy.
For years, even representatives of the solar sector itself have quite foolishly been saying that the goal of feed-in tariffs was grid parity. Major politicians and energy organizations have taken these people at their word and are now arguing that feed-in tariffs were simply a startup mechanism for solar, which is now mature and should be able to stand on its own. EU Energy Commissioner Oettinger is one good example, and Maria van der Hoeven – executive director of the International Energy Agency – stated as much this week as well when she wrote specifically of the recent cuts to feed-in tariffs in Europe:
“Renewable energy is swiftly coming of age, reducing the need for public support…. the cuts are a sign that some renewable energy technologies are coming into their own and moving towards a stage where public support will no longer be necessary.”
In her article, she actually supports renewables, and the gist of her argument is that cuts to feed-in tariffs should be seen as a sign of the success of photovoltaics rather than a failure of policy. I have argued so myself repeatedly, such as here. But I have also always made it clear that there is always going to be a need to:
- ensure that all renewable power generated is paid for (priority on the grid),
- prevent excess payments for such power (the retail rate will soon be far above FITs for solar in Germany, so the lower rate should continue to be paid – just as has always been done for wind power and power from biomass),
- make sure that subsidies continue for renewables for at least the next 200 years – after all, we are still forking it over to the coal sector, which has been profitable for at least the past two centuries.
In calling for an end to governmental support for photovoltaics, we are merely leaving subsidies up to the conventional energy sector – can you think of anything nuttier?
So I have a question for all of those solar activists who have been speaking of phasing out feed-in tariffs when we hit grid parity but are now on the street protesting the proposed cuts – do I finally hear an amen for what I'm saying? (Craig Morris)
Dear Craig,
Curent FiT markets like Italy, Japan and Germany have high electricity rates in excess of 20 ct/kWh. In all of these markets I figure we'll see FiT structures evolve towards net-FiT arrangements. In this setup the FiT is only applied to production in excess of real-time consumption. The arrangement is beneficial to the end-user if the retail rate is higher than the FiT rate. This is currently the case in Germany while Italy and Japan are moving in this direction. In a net-FiT market PV is playing off the retail rate. This is why I say the PV FiT is or can be referenced to the retail rate.
In the case of Wind you rarely have a specific end-user feeding electricity into their system before feeding into the grid. You could imagine a system where this occurred but there are a short-list of end-users with MW level loads. If wind were generally deployed in bit sized increments with end-users interacting with the backfeed then I'd agree wind is referenced to retail - but this is not the case in any wind farm I've heard of. Wind farms are build in 10, 20, 50, 100 MW blocks. These wind farms are generating power that is destined to go into the wholesale market. This is exactly what happens in the US and Canada with wind.
Biomass is the same way. I trust you when you say there are some onsite biomass systems but this is a short list and it's always going to be a short list. Two big reasons come to mind. 1. Bigger is better with biomass plants thanks to economies of scale. Bigger means there are few end-users with comparable load. 2. Biomass cannot deliver the quantity of energy that wind or solar can. The best photosynthetic efficiency I can think of is corn at .7% and that's before you add in all the energy costs of fertilizer, diesel and so on.
Wish I could explain some more but I have to go. Does this make sense.
Dear reader, where are wind and biomass "referenced to wholesale rates"? In the US, a production tax credit is the main incentive, so I suppose wind power is referenced to a company's peak tax rate. In Germany, feed-in tariffs are paid, and they are based on the cost of the system, not on the wholesale power rate.
Also in Germany, PV is the only source of power for which grid parity has been discussed even though it is not the only one that "offsets retail electricity." Renewables International has repeatedly written about cogeneration units for single-family homes, and small backyard wind generators are also on sale over here as well.
So I disagree. There has always been a double standard when we talk about feed-in tariffs for solar, and there is absolutely no reason to get rid of feed-in tariffs when we reach grid parity.
There is, however, a reason to be concerned about "peak demand parity." See: http://www.renewablesinternational.net/grid-parity-who-cares/150/537/28501/
Wikipedia describes FiTs as "a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology. Technologies such as wind power, for instance, are awarded a lower per-kWh price, while technologies such as solar PV and tidal power are offered a higher price, reflecting higher costs."
You said this last year:
"Mints' main contention – that solar will be better off when it can do without incentives altogether – seems logical at first glance, but don't hold your breath. FITs for wind and biomass have generally always been below the retail power rate, so why should anything change when solar is no longer the exception?"
Wind and biomass electricity prices are not referenced to retail rates - they are referenced to wholesale rates. If these resources were cheaper than wholesale power they would not need FiTs. PV can more easily be weaned off incentives because part of PV production (30 to ~100%) displaces retail electricity purchases. For many systems, the profitability hinges more on offsetting retail electricity than getting the FiT. The architects of the new FiT structure are trying to take advantage of this fact.
If you ask the protesters why they're protesting you'll get a range of answers. Some of these people work for module manufacture and legitimately fear the FiT cuts will lead to them losing their jobs. Other protesters don't like the fact that MW projects are facing steep cuts and 10 MW projects are getting axed altogether.