States with Feed-in Tariffs
Source: EEI
Background
Feed-in Tariffs (FiT) are structured incentives
used to promote the expansion of distributed
renewable energy resources onto the grid. Enabling
FiT legislation and ensuing regulation typically
mandates that utilities purchase energy from these
sources at government-established rates that are
above other regulated and market rates, with the
added costs socialized among ratepayers.
Policy principles
AEP recognizes that alternative energy projects
can serve legitimate environmental and societal
policy goals. However, FiT generally would not be
an economic benefit to AEP customers because
customers would be burdened with additional costs
that they would not otherwise pay. This is true
because in most cases the cost of power from small
renewable generation projects will be significantly
higher than the embedded or incremental cost of
AEP generation. Other less costly ways to support
renewable energy projects are available and should
be considered first, when and where appropriate.
These include voluntary green power tariffs, extra
basis points for return on equity for renewable
development, and renewable portfolio standards
(RPS).
Installation of Solar Panels
Policy issues
Policymakers may support FiT as a way to
advance environmental and distributed generation
goals by financially incentivizing renewable energy
technologies. There are several key issues that must
be considered in the application of FiT:
Cost: When alternative generation costs exceed
the utility’s avoided cost, or the generation
technology cannot provide reliable supply-side
support, the purchase of such power is economically
inefficient. In this instance, the resource will only be
developed or operated with a subsidy.
Risk: Requiring the general public to bear the
risk of independently-developed and privately-funded
investments under long-term, above-market, contracts
could be considered a misalignment of risk-reward.
Coordination: The integration of demand and energy
generated from these projects needs to be coordinated with
generation needs of the system. Additionally the transmission
& distribution infrastructure realities need to be considered for
the benefits of these systems to be realized and additional
unforeseen difficulties avoided.
FERC Guidance
FERC issued Clarifying Order on
implementation of California’s FiT statute. FERC
affirmed its jurisdiction over wholesale electric
sales and that PURPA required rates to be set at
avoided costs. FERC found that a commission
could set multi-tiered rates as long as those rates did
not exceed avoided cost.
AEP position
If stakeholders decide that the cost of
implementing a FiT is acceptable, AEP suggests
that the following conditions be integrated into the
design:
- Require that all safety and operational issues be resolved,
- Institute an economically responsible level of FiT,
- Ensure that any uneconomic costs resulting from the FiT are transparent,
- Ensure that the costs for FiT are recoverable and fairly allocated among ratepayers, and
- Establish a glide-path where FiT subsidies ramp down and completely phase-out, such that
the alternative generation technologies ultimately face economic realities.
Feed-in Tariff Price Calculation Methodology
Source: NREL
U.S. Feed-in Tariff Policy Design
Source: NREL
