FERC Ruling Clears Path for State-level Feed-In Tariffs

FIT Coalition Applauds the Federal Energy Regulatory Commission’s Bold Order.

Craig Lewis

FIT Coalition Applauds the Federal Energy Regulatory Commission’s Bold Order

Palo Alto – The FIT Coalition applauds the Federal Energy Regulatory Commission’s (FERC) order on Feed-In Tariff (FIT) pricing.  Issued on October 21, the FERC order validates the FIT Coalition’s longstanding position on FIT pricing and clears one of the last remaining roadblocks to enacting true, comprehensive FIT programs in the US.  With the clarification ruling, the FERC has provided a clear legal roadmap for the FIT Coalition to apply worldwide best practices to state-level FIT design.

A FIT is essentially a long-term contract for the purchase of clean energy that a utility “must-take” from qualifying independent energy generators.  FIT programs have proven to be the most successful policy in the world for bringing cost-effective clean, renewable energy online in a timely manner by spurring development in the Wholesale Distributed Generation (WDG) market segment.  WDG projects can be up to 20 megawatts (MW) in size and they connect to the grid near cities and other places where electricity is actually used and of the highest value.  The most effective FIT contracts are priced so that energy entrepreneurs are guaranteed a reasonable return on their investment with fixed, long-term prices and they also allow both communities and individuals to partake in renewable energy generation.

The FERC order clarifies how state policymakers can calculate these FIT prices.  Under federal law, the prices cannot exceed what is known as “avoided cost”, essentially the cost the utility would pay to acquire that energy from another source.  California, for example, calculates avoided cost based on the estimated cost of building a new 500 MW gas-fired power plant and then adjusts the pricing based on the time-of-delivery, so peak energy is valued higher than off-peak energy.

Unfortunately, narrow definitions of avoided cost have meant that existing FIT prices are too low to give renewable energy investors a sufficient return.  With the FERC clarification, that roadblock is removed because states now have a clear legal basis to improve the avoided cost calculation such that the FIT price works for investors.  Many of these improvements are based on the idea that generating energy close to where it is needed avoids the cost of sending energy on long transmission lines and avoids expensive upgrades to the electrical grid.  The inclusion of these “locational benefits” better reflects the true value of the energy.

Craig Lewis, Executive Director of the FIT Coalition, states, “I have argued for years that locational benefits belong in avoided cost calculations and I am gratified that the FERC order explicitly allows this to happen.  With this green light, the FIT Coalition looks forward to championing Feed-In Tariffs that unleash the Wholesale Distributed Generation market segment by fully valuing clean energy interconnected to the distribution grid, where it is most useful.”

Furthermore, the FERC order clarified that states have full authority to include the value of Renewable Energy Credits (RECs) within the compensation paid to clean energy generators.  States thus have complete flexibility to set FIT prices at precisely the level needed to attract private investment in clean energy.  This exact use of RECs is an option designed into FIT legislation that the FIT Coalition will be working to enact in states across the US in 2011, such as the Renewable Energy and Economic Stimulus Act (REESA) in California.

James Woolsey, former Director of the CIA and a member of the FIT Coalition Board of Advisors, declared, “With national clean energy policy stalled, the states must be allowed to move forward with programs that boost local renewable sources.  The FERC has taken a major step here in allowing states to realize the tremendous economic and environmental benefits of Feed-In Tariffs.”

Feed-In Tariffs are the most effective, proven policy for bringing massive amounts of clean, renewable energy online.   By unleashing the Wholesale Distributed Generation market segment, Feed-In Tariffs have driven the majority of all renewable energy that has been deployed in the world and are responsible for almost 90% of the solar capacity brought online in 2009.  The FIT Coalition is focused on implementing Feed-In Tariffs and other global best practices to propel clean energy production in the United States.  We are a non-partisan organization whose mission is to implement policies that will accelerate the deployment of cost-effective clean energy.  The FIT Coalition believes the right policies will result in a timely transition to clean energy while yielding tremendous economic benefits, including new job creation, increased tax revenue, and the establishment of an economic foundation that will drive growth for decades.  The FIT Coalition is active at the national, state, and local levels.

Craig Lewis

Founder and Executive Director

Craig has over 20 years of experience in the renewables, wireless, semiconductor, and banking industries. Previously VP of Government Relations at GreenVolts, he was the first to successfully navigate a solar project through California’s Renewable Portfolio Standard solicitation process. Craig was also the energy policy lead on Steve Westly’s 2006 California gubernatorial campaign, and his resume includes senior government relations, corporate development, and marketing positions at leading wireless, semiconductor, and banking companies such as Qualcomm, Ericsson, and Barclays Bank.