On the legality of feed-in tariffs in the US
For the past year we’ve been involved in a proceeding before the California Public Utilities Commission on an effort to establish a feed-in tariff, or standard offer contracting program for renewables. We believe it can be a healthy complement to the state’s other renewable energy programs—i.e. the California Solar Incentive for behind-the-meter generation, and the Renewable Portfolio Standard for wholesale generation—and properly designed, will stimulate untapped market opportunities, build economies of scale in the industry, and drive down prices.
For our collective troubles, the Energy Division staff proposed a new program (pdf), a gigawatt in size (incremental to the state’s current 500 MW FiT program). But before we could get to the most critical phase of the proceeding–setting the price–Southern California Edison challenged the state’s authority in the matter. Their argument is that the Federal Powers Act gives FERC sole jurisdictional authority for wholesale sales above avoided cost.
The CPUC then requested legal briefs from parties on the subject.
Here’s are the opening briefs (all PDF):
Reply comments are due tomorrow. Submissions should eventually show up here.
I don’t know anyone that has done deeper thinking or more research than Kevin Fox of Keyes and Fox LLC, and we were very happy to have him prepare our submission (jointly filed with the Solar Alliance).
What does it all mean? To translate from legalese: there are many avenues available to implement a feed-in tariff in a manner that avoids this issue. If you want to do a cost-based feed-in tariff, best to have the delta between avoided cost and the final price be paid via a renewable energy credit derived from a public purpose fund.
Another valid approach would be to set a price based on true value to ratepayers. Such an approach would begin with the marginal cost of alternate new long-term generation contracts (such as, in California, the market price referent or successor), and then incorporate additional value adders such as time of delivery, cost of carbon, cost of other avoided air emissions, value of grid support and other ancillary grid services, and value of avoided or deferred transmission or distribution investments. We believe that this approach satisfies jurisdictional challenges.
A third approach would be to establish a requirement for utilities to purchase renewable energy with the desired characteristics (e.g. of certain sizes and technologies) and use market mechanisms to establish a price that would then be offered to all parties as a standard offer contract.
There are significant political, policy and market ramifications with each approach. But that’s a subject for another post.