Solar feed-in tariffs or FiTs and Renewable Portfolio Standards both work to increase the output of renewable energy, but each regulatory process differs in function. With an RPS, utilities are obligated to generate a percentage of their annual energy supply from renewable sources or else purchase Renewable Energy Credits on the open market to fulfill this requirement. If they do not meet the RPS, these suppliers face an Alternative Compliance Payment higher than the market price of RECs. On the other hand, FiTs mandate that all renewable energy generated each year must be purchased by utilities and at high prices that work towards establishing grid parity. This is achieved when the cost of producing renewable energy is less than or equal to the cost of grid power.[i] Establishing a national RPS is a better option for the U.S. because FiTs have created less-than-desirable consequences in foreign economies and in the solar energy market as a whole.
The United Kingdom recently adopted a FiTs policy, establishing a rate of $53.50/kWh of electricity generated (for a typical 4Kw system) and a rate of $4.35/kWh of surplus electricity that is exported to the national grid.[ii] Wayne Morris of RenweableEnergyWorld.com even suggests an average rate of return of 10% for homeowners who enter the program.[iii] But consumers who do not own a solar system and have not opted into the program will pay a higher electricity bill each month as the increase in energy rates are passed on to them by utility companies. Some cities in the US have adopted the European-based policy, beginning in 2009 with Gainesville, Florida. The policy in Gainsville established a 25% premium over the subsidies the city formerly offered and utilities estimated the program would increase the average homeowner’s electricity bill by 74 cents per month[iv].
The risk of boom-bust cycles is another reason that a national RPS is superior to FiTs. Germany was the original FiTs success story, and in 2009 these subsidies helped increase the country’s total solar capacity by 60%[v]. Unfortunately, the aggressive government subsidies created artificial growth and when these subsidies were taken away last January, the solar bubble burst. A national RPS will promote organic growth in the domestic solar industry as opposed to its regulatory cousin FiTs.
[i] Wikipedia.com “Grid Parity” Website <http://en.wikipedia.org/wiki/Grid_parity>
[ii] Renewable Energy World.com “Solar feed in tariff announced” Website <http://www.renewableenergyworld.com/rea/partner/big-green-company/news/article/2010/03/solar-feed-in-tariff-announced>
[iii] Renewable Energy World.com “Solar feed in tariff announced” Website <http://www.renewableenergyworld.com/rea/partner/big-green-company/news/article/2010/03/solar-feed-in-tariff-announced>
[iv] Galbraith, Kate,“Europe’s Way of Encouraging Solar Power Arrives in the U.S.” New York Times <http://www.nytimes.com/2009/03/13/business/energy-environment/13solar.html>
[v] EthicalCorp.com “Feed-in tariffs: Solar energy bubble is FiT to burst” Website <http://www.ethicalcorp.com/content.asp?ContentID=6901&newsletter=24&utm_source=http://communicator.ethicalcorp.com/lz/&utm_medium=email&utm_campaign=EC%20News%2018%2005%2010&utm_term=Growth%20and%20CR,%20Japan%20briefing,%20award%20winners%20in%202010,%20and%20tackling%20kickbacks%20in%20China&utm_content=178429>