U.S. Representative Jay Inslee (D-WA) on Wednesday tackled head-on the question of whether Congress can mandate electricity prices with the introduction of legislation that would set “feed-in” tariffs to motivate the development and purchase of more renewable sources of electric power.
Inslee’s “Renewable Energy Jobs and Security Act” has three main tenets: a guarantee to interconnect renewables to the grid with uniform standards; a mandatory purchase requirement through long-term contracts with fixed tariffs; and rate-recovery through a regional cost-sharing and systems benefit charge.
By making these guarantees, Inslee said, “We can give homeowners, farmers and communities across America investment security that they can take to the bank. We know from experience in Germany, Spain and dozens of other countries around the world that this policy approach spurs unparalleled and affordable renewable-energy development.”
Whether the proposal, which one informed observer called a “shot across the bow” of the utilities, even stands a chance in a future Congress remains to be seen. More practically, renewable energy suppliers and utilities will likely be watching how this proposal could shift the debate around renewables and alternatively help secure other policy approaches to renewables such as a national renewable portfolio standards (RPS), which would, in effect, apply to states that do not already have one. Twenty-six states currently have an RPS.
“Any process that prevents Congress from holding renewable energy development hostage – as we’re seeing with the debate over the tax credits – deserves support,” said Matt Ferguson, head of the Renewable Energy Practice at the Reznick Group. “Everyone wins with a performance-based incentive. We just need to make sure that we reward the correct activity.”
Scott Sklar, a long-time advocate of renewable energy said, “This is an important bill because of how feed-in tariffs are working in Germany. It sets a marker to utilities that renewable energy pricing needs to be addressed.”
Inslee’s legislation would require utilities – at the request of any new renewable energy facility owner – to enter into a 20-year fixed-rate power purchase agreement. Uniform national “renewable energy payment” rates would be set by the Federal Energy Regulatory Commission at levels that would provide a 10% internal rate of return on investment for available commercialized technologies in regions constituting the top 30th percentile of renewable energy resource potential in the U.S.
A quick survey of electricity policy analysts pointed to challenges Inslee and his allies will have finding a way to pay for the rate-recovery mechanism. The bill would facilitate cost recovery through a new private – and independent – utility organization called “RenewCorps,” which would be subject to FERC oversight. Utilities would be reimbursed by this organization for the additional cost of their power purchases, plus all costs associated with interconnection and network upgrades needed to accommodate the new renewable sources.
How all those costs are determined adds layers of complexity to an already complicated legislative proposal. Among the possibilities being tossed around are revenues from auctioning carbon credits in a future carbon cap and trade law.
At the start, Inslee – who represents Seattle – had secured three co-sponsors: Rep. William Delahunt (D-MA), James McDermott (D-MA) and Michael Honda (D-CA).
Six states have introduced feed-in tariff legislation for their own purposes: California, Illinois, Michigan, Minnesota, Rhode Island and Hawaii. Eight other states have begun considering some type of feed-in tariff or incentive pricing plan: New York, Massachusetts, Oregon, Wisconsin, Florida, New Jersey, Maine and Vermont. Together, they demonstrate that at least the concept of feed-in tariffs is not going to fade away any time soon and may, in fact, gain support in the next Congress and with the next President.
Under the German feed-in tariff, renewable energy technologies are guaranteed interconnection with the grid and are paid a premium rate that is designed to generate a reasonable profit for investors over a 20-year term. There are different rates for different types of renewables depending on what the law’s authors thought were necessary to develop them profitably. Germany’s tariffs decrease each year.
Although often linked to the infamous U.S. Public Utilities Regulatory Policy Act (PURPA), Germany’s feed-in tariffs do not peg long-term contracts to the cost of avoiding conventional fuels, which was one of PURPA’s objectives. As a result, those tariffs have avoided the contentious debate over those “avoided costs,” which could differ region by region under PURPA.
Inslee’s proposal would differentiate renewable energy payments by technology type, size of the system and the year it was placed in service. Simple and principled enough to lay the foundation for serious consideration in the 111th Congress? Stay tuned.
June 27, 2008
by Jim Pierobon, Contributing Writer