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United States Feed in Tariffs

Unlike the U.K. and other European countries, the United States has no coherent renewable energy strategy for encouraging individuals to install renewable electricity and heat generation sources. This is a bit odd given that the U.S. has 50% higher solar irradiation (basically 50% more sunlight) than the world market leader, Germany. Incentives are offered at the state level and also by individual utility companies. Despite the lack of a consistent policy, there are some federal guidelines for FIT programs.

Public Utility Regulatory Policies Act (PURPA)

This was part of the National Energy Act signed into law by President Jimmy Carter in 1978. The act was designed to encourage energy conservation and promote the development of alternative energy resources. The most important provisions of PURPA are as follows:

  • Utility companies are required to purchase electricity that is generated from qualifying independent systems at rates “not to exceed their avoided cost.”
  • Utilities may not own more than 50% of projects. This clause is intended to prevent monopoly.

 

The major problem with PURPA, other than its near 40 year age, is the fact that “avoided cost” can be interpreted widely by different states and utilities. Some have read it to apply only to avoided fuel costs while others have read it to apply to long-run costs. The result is that some utilities offer generous feed in tariffs that provide adequate incentive while others offer very meager incentives that cannot offset the high costs of installing alternative energy systems. States like California, Florida, and Maine, have benefited greatly from PURPA and lead the U.S. in renewable energy generation.

Local Policies

Many cities and states in the United States have begun to take charge of feed-in-tariffs by implementing policies very similar to those in Germany. Most of these programs provide feed in tariffs for returning energy to the grid with the only limit being that the tariffs end when the individual utility bill drops to zero.

Many cities and states offer conflicting policies that are mutually exclusive. In other words, in many cases, individuals must choose whether to accept a state or more local FIT. Accepting one automatically makes an individual ineligible for the other. Such a system creates a great deal of confusion. An example of such a system is seen in Sacramento, which is open only to homeowners who are not participating in the state program called “net-metering” and are not participating in the state “Million Solar Roofs” program. It is up to individuals to determine which program will offer the best incentive, a difficult task given the various parameters of each program and the unpredictable nature of energy generation.

Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints and Possible Solutions

This long-winded title belongs to a paper written by scientists and policy analysts at the National Renewable Energy Laboratory (NREL). The goal of the document is to provide guidance to states on how to offer feed-in-tariffs while remaining in compliance with complicated and antiquated federal laws. The major impediment to states implementing FITs is that PURPA restricts them to “not exceed the avoided cost.” In other words, states are limited in the size of the FIT they can offer as a result of PURPA. The rate is far too low to offset the costs of solar installations and therefore little occurs under these programs. The document as titled above advises states on how to get around these regulations and limits and was put out the federal level NREL.
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