Sunday, February 13, 2011

Feed in tarriff's help or hurt?

As you can see from the following article, Feed-in tarriffs or FITs can lead to a boom and bust mentality that I am sure we are all sick of. The question is are premium payments for energy a good idea? I think the answer is yes becuase the real question is, "Do we currently have a viable alternative to fossil fuel when prices spiral out of control?" The answer to that is NO we don't and currently all fossil fuel companies are happily waiting for prices to rise. FITs have been wildly successful in Germany, Spain and now the UK. The real issue is how much should the premium payment be and for how long. Scaling the payments to incentivize early system adoption is a good idea, coupling the payment with tax credits for system owners is a good idea too. Creating investment vehicles with strong profits by levying a premium payment against the utilities or govt is not a good idea when it is not sustainable long-term. Gradual growth and price decreases due to efficiency and scale are the way to go for all renewable energy's.

I fully expect the price of solar to drop below $4 a watt installed by 2013. This would mean a solar system could be financed by the savings with a 20% downpayment in the Southeast US.

The introduction of the Feed-in Tariff in the UK in April 2010 has sparked an explosive reaction in the UK renewable energy market, with the solar PV market seeing the largest growth

According to a recent report from the analysis firm Greenbang (of which I happen to be the lead author), in just a half-year since the tariff was introduced, more than 10,000 solar photovoltaic (PV) installations were recorded, with the majority consisting of domestic installations. This has led to an increase of twice the 2009 installed capacity in the first six months.

The overall installed capacity is also set to rapidly increase as larger-scale (5 MW) solar farms come into play in the next 12-18 months. These outcomes demonstrate the positive effect the feed-in tariff has had on the UK solar market, despite the poor economic conditions.

The only way for the UK renewable energy market to grow to a respectable size comparable with Germany is for it to have the full support of the incumbent government. The fact that large-scale solar PV farms are beginning to appear in the English countryside should be celebrated as a success of the government’s FIT policy.

Instead, the scheme is being portrayed as an enemy to micro-generation, with little regard for the fact that large-scale solar PV helps companies to achieve lower costs that can then be passed on to domestic installations.

This week, Chris Huhne, Britain’s Secretary of State for Energy and Climate Change, announced the government would start its first review of the FIT scheme for small-scale, low-carbon electricity generation. This news comes earlier than expected and will lead to uncertainty within the UK renewable market, in particular for solar PV.

Before we get into the changes, let’s have a brief explanation of the UK feed-in tariff.

The measure can be separated into two sections: one provides a fixed payment for electricity generated, called the “generation tariff,” and the other, which enables any unused electricity to be exported to the grid, is known as the “export tariff.”

Each type of technology (solar PV, wind, hydro, anaerobic digestion (AD) and micro-combined heat and power, or micro-CHP) is implemented differently, with contrasting prices for kWh of electricity produced by each system. This is to ensure a level playing field by encouraging the installation of the more expensive technologies, such as solar PV, which receives the highest rates.

For the FIT to be sustainable, the tariff rates are reduced annually after the first two years of implementation, in line with predicted price reductions for each of the technologies due to advancement of production techniques and related cost reductions.