Recent developments in Virginia put a spotlight on feed-in tariffs (FITs), which are used to encourage deployment of renewable energy.
In March, Dominion Virginia Power’s voluntary FIT for residential and commercial solar photovoltaic (PV) generators was approved by the Virginia State Corporation Commission. Participants will receive 15 cents per kWh for a contract term of five years for all PV-generated electricity provided to the grid, and will continue to pay the retail rate for all electricity that they consume. Virginia’s average 2012 retail electricity price was 10.5 cents/kWh for residential customers and 7.8 cents/kWh for commercial customers.
FITs are used to a limited extent around the United States, but are more common internationally. Historically, FITs have been associated with a German model in which the government mandates that utilities enter into long-term contracts with generators at specified rates, typically well above the retail price of electricity.
In the US, net metering is a more common model, according to an article on the Energy Information Administration’s website.
According to Gwendolyn Bredehoeft, author of the EIA article, “Both net metering and feed-in-tariff programs have many different forms. But in general, net metering arrangements typically involve utility customers being effectively reimbursed at the retail electricity rate, with generation fed onto the grid counting against their usage bill on a kwh-for-kWh basis. In casual wording, we sometimes refer to this as ‘dialing the meter backwards.’ Net metering arrangements generally do not require that customers have two separate meters. FITs, on the other hand, are agreements that utility customers feed generation onto the grid at a predetermined tariff rate for a given period of time. Customers may be required to separately meter the generation qualifying for the FIT, and consumption and generation will be two distinct line items on the customer’s bill.”
Other types of policies encouraging development of new renewable capacity more commonly used in the US include:
- Rebates for purchasing renewable generation equipment
- Renewable portfolio standards (RPS)
- Tax incentives (production- or investment-based) such as the federal wind production tax credit
In the United States, FITs are typically used in combination with one or more of these other incentives. In general, feed-in tariff rates that lead to significant additional renewable energy investment are set above the retail cost of electricity.
In a recent example, in 2012 Japan implemented a new FIT with particularly high PV tariff rates (more than 40 cents per kWh) as part of its post-Fukushima policy.
Feed-in tariffs vary widely in execution. EIA is now publishing a new table on the variety of feed-in tariffs used in the United States.
Typically, feed-in tariffs will specify:
- Eligible technologies – FITs in the United States generally include solar PV, but may include other renewable technologies. Other countries’ FITs, particularly the German and Danish programs where the policy was tested and developed, initially focused on supporting wind.
- Rate and contract terms – Excluding some experimental programs, most US contracts are long term (10-20 years). Utilities often set rates that depend on project size (smaller projects tend to receive higher rates) and technology (solar PV tends to receive higher rates than other technologies). Rates can also depend on the overall program goal, and utilities or states may revise their tariffs in cases of over- or under-subscription.
- System size and sector restrictions – Most US FIT programs have a maximum size for individual projects and may limit participation to certain sectors, like residential customers. The new Dominion Virginia Power Solar Purchase Program, for example, applies only to residential systems up to 20 kW and commercial systems up to 50 kW.
- Program size limitations – Most US programs designate a cumulative ceiling, set either annually or at the program level, capping the amount of capacity that can take advantage of the tariff. This is an important cost containment mechanism for FIT programs.