Friday, August 14, 2009

SMUD Feed in Tarrif

SMUD Announces "Feed-in Tariffs"-- But Can Program Deliver as Promised?

The Sacramento Municipal Utility District (SMUD), the nation's sixth largest publicly owned utility, announced with much fanfare that its board of directors had approved the introduction of feed-in tariffs for renewable energy in 2010.
The announcement created a buzz within the renewable energy industry as evidence that another utility voluntarily moved toward feed-in tariffs to boost renewable energy development. Utilities in Indiana and Michigan have proposed their own feed-in tariffs and the municipal utility in Gainesville, Florida began offering a feed-in tariff this past spring.
Feed-in tariffs are becoming increasingly popular. Even the conservative Wall Street Journal noted this week, "feed-in tariffs are gaining traction" as a policy mechanism.
SMUD made the decision for all the right reasons. "For SMUD and our customers, the FIT [feed-in tariff] will be mutually advantageous," said the board's briefing documents. "By standardizing our purchase offer, the FIT will streamline the time and effort currently required to contract with power generators. For customers, the FIT will provide a new opportunity to sell power at a fair market price from small-scale generation units. In particular, the FIT for Renewable Generation will assist SMUD in meeting the goals not only for our Renewable Portfolio Standard (RPS), but also for greenhouse gas reduction."
On the surface, SMUD's proposal appears bold By California standards. The program would apply to projects up to 5 MW and the overall program is capped at a relatively high 100 MW. And in a likely a first for North America, SMUD's plan will also include fossil-fuel fired Combined Heat & Power (CHP) projects. (SMUD will join Britain in offering specific feed-in tariffs for CHP plants in 2010.)
SMUD's plan also includes all renewables unlike the program in Gainesville where the municipal utility earlier this year launched a highly successful feed-in tariff program for solar PV only.
Nevertheless, the specific tariffs proposed by SMUD have raised questions among analysts whether the proposal accomplished its stated objective of developing a "fair" price for renewable energy. Or whether the program will even be effective at developing renewable energy at the pace desired.
Like the tariffs determined by the California Pubic Utility Commission (PUC) for its feed-in tariff program, SMUD's tariffs are based on the "value" of the generation to SMUD. As in the PUC's program, the tariffs vary by time of day and season of the year.
In a recent analysis of the California PUC's feed-in tariff, Toby Couture of E3 Analytics found that only 14 MW have been installed in the 500 MW program. There are 36 million people in California. In contrast, Gainesville, with a population of 90,000, is expected to install 4 MW in its first year.
SMUD makes no differentiation between technologies, size, application, or resource intensity, unlike successful programs in Europe and the proposed feed-in tariff program in Ontario, Canada.
Payment under SMUD's program will require a sophisticated analysis of hour-by-hour generation and the probability of occurrence. For example, the tariffs for a 20-year contract beginning in 2009 vary from $0.082 USD/kWh during the shoulder season to $0.29 USD/kWh during superpeak.
SMUD, one of California's more respected utilities, tried to hedge its tariffs by offering a bonus for the generation's green value. The proposed tariffs include the wholesale cost of power avoided plus estimated greenhouse gas mitigation costs and the cost due to natural gas price volatility. For a 20-year contract, the greenhouse adder is $0.0111 USD/kWh and the gas-price hedge is $0.0115 USD/kWh for a total premium in 2009 of $0.0227 USD/kWh.

Here's a summary of the program.

    * Program Cap: 100 MW
    * Project Cap: 5 MW
    * Contract Terms: 10, 15, 20 years
    * Time Differentiated Tariffs
    * No Technology Differentiation
    * Tariffs based on avoided cost, value-based tariffs
    * Effective January, 2010
    * Applications available November, 2009
    * Includes tariffs for Combined Heat & Power

Industry analysts were quick to applaud SMUD's effort while noting the program's deficiencies.
It's clear that SMUD is trying to move the policy needle in California suggests Craig Lewis, a founding member of the [California] FIT Coalition. "The fact that SMUD raised the project size limit to 5MW is indicative that they believe distributed generation projects can be seamlessly integrated into the distribution grid in California," says Lewis in reference to the lower limit of 1.5 MW in the PUC's program.
Lewis goes on to note that possibly SMUD's most significant contribution to the renewables debate in California is the program's target of 100 MW. SMUD serves 1.4 million customers in and around the state capitol. According to Lewis, SMUD's program "scales to a statewide equivalent of roughly 3,000 MW. This provides an informative example for both the California legislature and the PUC."
The PUC's current program is limited to slightly less than 500 MW. The California Solar Initiative (CSI) is limited to 3,000 MW of solar PV. SMUD's program alone is equivalent to the statewide CSI. "These are the minimum FIT program sizes that California policymakers need to be considering if they want to make the RPS [Renewable Portfolio Standard] real," Lewis argues.
But it's SMUD tariffs that give analysts the most concern.
"SMUD's feed-in tariff price structure is a maze of 216 different payment rates for different seasons, times of day, contract lengths, and starting year," says Robert Freehling, a renewable energy consultant. "Even after a developer picks a technology, a starting date and a contract length, individual projects will be subject to nine different rates that depend on time of day and season of the year for the duration of their contract."
Freehling, who notes that SMUD has otherwise been a leader in energy efficiency and renewables in California, "is trying to fit a round peg in a square hole" by using such "market rate" formulas. "While the goal of getting good value for ratepayers is valid, this particular pricing design has been repeatedly shown to be ineffective for feed-in tariffs. California's "market rate" feed-in tariffs are a great example of how this does not work."
He's not alone.
"While SMUD has been at the forefront of innovative utility policy in the U.S. since the 1990s," says Toby Couture, Canada's leading feed-in tariff analyst, "it's missing one of the basic lessons from countries around the world: the tariffs have to be cost-based to drive substantial amounts of investment. Investors expect a return," Couture says, "and if they can't guarantee that, they're likely to look elsewhere."
"The countries that have had success with feed-in tariffs base their prices on the actual costs of renewable energy generation. If the FIT prices aren't cost based, they're not likely to attract capital, for the simple reason that investors need to know they're going to make money," Couture explains. "This doesn't need to be returns of 15-20 percent. Markets in Germany and Spain have shown that reliable returns of 5-8 percent are typically adequate to attract large amounts of investment to the renewable energy sector. This is even more likely to hold true in today's financial markets."
Lewis, of the FIT Coalition, fears the worst. "It appears that SMUD's FIT is going to be insufficient." He estimates that the average payment under the SMUD program for solar PV "will be in the $0.17 USD/kWh range, and this is simply insufficient to attract solar project development. Nobody is going to invest in projects that are guaranteed to lose money!"
Gainesville Regional Utilities pays $0.32 USD/kWh for a 20-year contract to a solar PV generator and Vermont will begin paying a tariff of $0.30 USD/kWh for solar PV this fall. Both programs based their tariffs on the cost of solar PV generation, not its theoretical value to the system.
Time will tell whether the analysts or SMUD's engineers are correct. If SMUD is wrong, it will have stumbled badly; further eroding already shaky confidence in California utilities. Worse, the once-innovative utility will have lost valuable time in the race to bring on more renewable energy as quickly as possible.

Thursday, August 6, 2009

Solar Universe Opens Office in Thousand Oaks

Rebates help lower cost of solar
A light bulb went off in the head of a Thousand Oaks retiree after he heard about tax rebates for solar energy. Now he is back to work.

Mitch Katz was searching for a way to reduce the $1,500a-month electric bill on his 7,000-square-foot home. Upon investigation, he found that California is giving almost a 20 percent rebate and the federal government is offering a 30 percent tax credit to homeowners who convert to solar power.

His familys swimming pool was already heated by solar energy, keeping it at a constant 85 to 90 degrees without using propane, Katz said.

Research showed him that a group of 126 solar panels installed on a hill on an unusable portion of his property would give him more electricity than he needs, taking him off the grid and giving him energy credits.

The photovoltaic solar panels for his 28kW system cost $150,000 before rebates. He did the math and realized with the rebates he would be saving money after just a few years.

I was so impressed with the money I am saving that I bought a franchise (in the solar company). The federal tax credit is a real tax credit, not a deduction - Katz said.

Saturday, August 1, 2009

Ohio: the next solar frontier?

COLUMBUS, Ohio – Ohio's latest budget seeks to put solar power in the financial reach of Ohio residents by addressing the cost of installation, the biggest barrier to the renewable energy technology's large-scale deployment.
Now the onus falls on cities and townships across the state to carry the vision forward.
The budget approved earlier this month enables cities to use bonds or grants to pay for the installation ofsolar panels, whose initial cost of tens of thousands of dollars is unaffordable to the vast majority of homeowners. Residents who get the money will then pay back the cost, plus the interest, through an assessment on their property taxes for up to 25 years.
If a homeowner with a solar panel were to move, the panel would remain on the home and be paid by the next homeowner's property taxes.
Berkeley, Calif., was the pioneer for municipal solar financing two years ago, and the idea has spread to other California cities and roughly a dozen states, including Virginia and Maryland. Berkeley has 38 projects funded through the city during the project's filing phase.
In Ohio, the idea started with the Athens City Council in Appalachia in southeast Ohio, which took it to state Sen. Jimmy Stewart, an Albany Republican. It quickly went into the budget plan.
"What we're really hoping to do is establish a model that other cities across the state can copy," said Councilman Elahu Gosney, who said the primary focus is on homeowners but the financing could later be extended to businesses. "One of the driving forces behind this is to use this as a job creator and try to improve our economy."
For the program to have any impact, Athens will have to embark on an education campaign to alert homeowners to the program and convince them of its benefits.
The Athens area has three renewable energy installation companies, which stand to benefit from the new government program.
Matt Bennett, president of Dovetail Solar and Wind, said the economic environment and tightness of the credit markets make solar power out of the reach of most homeowners, even when state and federal grants and tax credits are available.
"It's not something that in these times a lot of people want to go out and invest in even though it may be paid off in the long run," Bennett said.
The average home uses about 700 kilowatt-hours of electricity a month, and the average homeowner getting a solar installation will purchase a solar array large enough to handle about half of the home's electricity needs. That costs about $30,000, Bennett said.
When combined with state grants of $3 per watt for solar power and a federal tax credit equal to 30 percent of the cost of the solar system, the new upfront financing program should enable most homeowners to afford the panels if they think long term, Bennett said.
Homeowners with solar powers have a number of ways to save and make money once the panels are installed. They won't need to purchase as much — or in some cases, any — electricity from their utility company. And if the utility company has a net metering program, the homeowner can sell the excess electricity produced by the solar array to the utility.
Finally, utility companies are now required under Ohio law to produce a certain amount of their electricity from renewable energy sources, with a special requirement for solar energy. One of the ways they can meet those requirements is from buying renewable energy credits from homeowners and other companies producing solar power.
"This is a policy that could really allow for solar panels to flood the state of Ohio," said Amy Gomberg, program director with Environment Ohio.