Daniel Englander
Showdown in the Sunshine State May 8, 2008 at 8:34 AM
Florida Governor Charlie Crist signed into law one of the nation’s most comprehensive energy bills this week. The bill also received significant support in Florida’s House, passing with a 117-0 margin, and the Senate, where a lone dissenter changed his vote at the last minute, inching up the vote count to 40-0. Despite this outpouring of legislative affection, which came about only after more than two years of infighting and millions of lobbying dollars, some groups in the state are only now girding for battle.
Yesterday a group of “Solar Energy Companies Growing in Florida” sent Gov. Crist an open letter (pdf) urging him to adopt a feed-in tariff for the state. The energy bill creates a mandate for the Florida Public Service Commission to issue and enforce a Renewable Portfolio Standard (RPS) for utilities. An RPS would require utilities to generate a certain percentage of their electricity from renewables or efficiency programs, and would be backed up by a Renewable Energy Certificate (REC) trading program. REC programs are technology agnostic, merely providing the seller with a cash payment per MWh of renewable energy generated. Buyers, typically utilities, accrue RECs as a means of meeting their RPS requirements. The pricing structure for RECs fluctuates depending on the type of renewable energy used, supply volume, demand constraints, etc. In the second half of 2007 (pdf), the cumulative weighted average price in New Jersey ranged from $197.90/MWh in August to $233.89/MWh in November.
Depending on how you look at it, RECs have two critical problems. First, they don’t encourage the growth of specific renewables sectors. Second, they tend to favor utility- and commercial-scale installations over distributed generation. Feed-in tariffs attempt to accomplish both of these goals, which is why a large number of solar installers and integrators favor them. Most of the individuals signing the open letter to Gov. Crist represent these kinds of companies. Feed-in tariffs provide a fixed payment to solar system owners, which allows them to receive a fair rate of return on their upfront investment. This tends to encourage the growth of smaller, distributed systems. The payments themselves are revenue neutral, which means the utilities that buy distributed power are required to subsidize it through raising rates on everyone’s power bill, even though the payments go to a small number of the utility’s rate payers. Kind of like reverse welfare.
There are other problems with feed-in tariffs, but I’ve gone into those before. Ultimately, the decision to adopt a feed-in tariff versus an REC/RPS program in Florida really depends on the preferences of the state government, utilities, and those in the different renewables sectors. If the players are interested primarily in growing the solar industry in Florida, it’s possible a feed-in tariff is the way to go. At least in the short term, until technology costs and commodity pricing fall out whack, leading to the kind of market distortion Germany is currently experiencing. However, this may fail if the feed-in tariff price comes within a certain range of the retail electricity rate. SunPower’s Jim Torpey argued, “in the U.S., because of a lot of push back from other interest groups, you may end up getting a rate that’s too low and you may not be able to get projects built.”
If the ultimate goal in Florida isn’t industry support but, rather, reducing greenhouse gas emissions and forcing the state’s utilities to diversify their energy sources, then a RPS/REC program is the right kind of policy. Since it’s technology agnostic, project developers will go after the cheapest forms of green power and renewable energy first. Energy efficiency programs and demand side management are good examples. Solar power may well follow, though not until utilities have squeezed every kind of efficiency they can out of the power grid. By the time that occurs, the installed cost of solar may have fallen low enough that incentives and subsidies aren’t required. And that’s good news for everyone.
Go back to the front page >>
