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Feed-in tariffs critical for new affordable clean energy policy

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SEMI photovoltaics (PV) Group recently released a market analysis report on solar feed-in tariffs

SEMI photovoltaics (PV) Group recently released a market analysis report on solar feed-in tariffs, which was published to promote understanding of public policy best practices for the development of solar energy. In general, feed-in tariffs are critical for the implementation of new affordable clean energy policy across the globe without a major hike in energy prices.

Renewable feed-in tariffs are a policy mechanism designed to encourage the adoption of renewable energy sources. They typically include three key provisions: 1) guaranteed power grid access, 2) long-term contracts for the electricity produced, and 3) purchase prices that are based on the cost of renewable energy generation. In other words, the difference in cost of adding renewable energy sources over a cheaper conventional coal or natural gas plant is distributed among the customer base at a nominal rate. Under a feed-in tariff, an obligation is imposed on regional or national electricity utilities to buy electricity derived from clean, renewable resources from all eligible participants in the market.

The PV Group supports the development of feed-in tariffs around the world as the most effective means to ensure sustained growth for the PV industry without a significant burden on consumers; however, there are an array of other competitive solar integration policies globally. Nonetheless, feed-in tariffs have fueled the rapid PV market growth in Europe over recent years and are also flexible, since they can be integrated with existing polices such as rebates, renewable portfolio standards, tradable renewable energy carbon credits, net metering, and tax credits.

The public policy principles that the PV Group emphasized in their free White Paper includes: stable and predictable policies to encourage private investment; transparent and streamlined policies to promote fair and honest outcomes; and open and accessible policies to enable distributed energy production. Best practices encouraged by the White Paper include: support for technology differentiation in terms of design and efficiency, generation cost-based rates, fair purchase and interconnection requirements, use of fixed-price and long-term payment agreements. Over 40 different feed-in tariff policies are in effect globally; thus, this White Paper is beneficial for comparing and contrasting best practices in order to guide the most effective future policy decisions.

According to PV Group, nearly 80 percent of the world’s solar demand is provided by FIT-supported policies. Feed-in tariffs have become preferred tools in the solar space, since they offer the following benefits: a pay-as-you-go usage program per kilowatt-hour, not subsidized by taxpayers, and compatibility with other renewable energy policies. The ability of feed-in tariffs to attract low-cost capital from a wide range of different investor types has become even more critical during the ongoing shortage of available bank credit to businesses. Even though there are approximately 40 different FIT policies across the world, a global feed-in tariff system has not been fully supported across the clean energy industry, but many feel that national feed-in tariffs are the ideal solution, which should be customized to the specific needs and technology options for a particular country. For instance, a concentrating solar power (CSP) feed-in strategy for a South American country may not be useful or relevant to a geothermal policy in Japan.

Feed-in tariffs may also help enable the The European Union Energy Council in meeting its new Energy Performance of Buildings Directive (EPBD) requiring all buildings to be essentially energy neutral by 2020, which means that a high percentage of energy consumption in new buildings will require renewable energy. This effort is a major victory for the green building movement, while this policy is more aggressive than the U.S. mandate for a reduction in federal government building energy consumption by 30 percent by 2015 with respect to 2003 levels and the requirement for 25 percent of its energy consumed to be generated by clean, renewable energy by 2025.

Solar PV panel systems and solar thermal technologies are some of the best options for integration into buildings, and companies with pre-existing market share have the most to gain. However, no target has been set for existing buildings in Europe, which currently represent about 99 percent of the landscape. In any case, this policy will help formulate more of a continental uniformity in the solar market over time, which has been segmented in recent years based on national feed-in tariffs in countries such as Spain and Germany, which became hotbeds for solar installations that attracted the whole supply chain as well, whereas other countries without solar incentives stood idle in the field.

The European Photovoltaic Industry Association (EPIA) has supported the mandate for energy neutrality and has offered recommendations to individual EU nations on implementing the directive. In specific, this organization is advocating for decentralized renewable energy sources, which would favor solar panel installations on the buildings themselves rather than the purchase of power from existing or planned central station renewable energy projects such as: solar and wind farms, CSP facilities, and geothermal and biomass plants. The EPIA reasoning in this matter is based on creating more energy-independent building entities that may possibly even become autonomous or positive energy buildings, which are ones that supply energy back to the grid. Ultimately, geography and regional pricing will play a role in how the policy is implemented across Europe since sun-intensive regions of Europe such as southern Spain and Italy will be more advantageous for CSP or solar thermal plants supplied by a company such as Solana or Abengoa, which happen to be building facilities in the Arizona desert, over localized solar installations.

This new piece of legislation will be essential in meeting the target set by the EPIA to supply 12 percent of Europe’s electricity demand for its 27 EU countries by 2020 with solar energy. Europe’s experience with advanced renewable energy policy integration such as feed-in tariffs will be beneficial in implementing this measure. If the U.S. enacts cap-and-trade legislation with an accompanying renewable energy portfolio standard, possibly in response to COP15 Copenhagen Climate Change Conference initiatives, feed-in tariffs may become more pervasive in this country as well.

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