FEED-IN TARIFF - PowerPoint Presentation

Slide1

FEED-IN TARIFF as a Marketing Strategy for Renewable Energy

M.

Zafar

Iqbal

Department of Physics

COMSATS Institute of Information Technology

IslamabadSlide2

A feed-in tariff (FIT), (standard offer contract,

advanced renewable tariff

or

renewable energy payments)

is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology. Rather than pay an equal amount for energy, however generated, technologies such as wind power, for instance, are awarded a lower per-kWh price, while technologies such as solar PV and tidal power are offered a higher price, reflecting costs that are higher at the moment.Slide3

In addition, feed-in tariffs often include "tariff degression", a mechanism according to which the price (or tariff) ratchets down over time. This is done in order to track and encourage technological cost reductions. The goal of feed-in tariffs is to offer cost-based compensation to renewable energy producers, providing price certainty and long-term contracts that help finance renewable energy investments.Slide4

FITs typically include three key provisions:

guaranteed grid access

long-term contracts

cost-based purchase prices

Under a feed-in tariff, eligible renewable electricity generators, including homeowners, business owners, farmers and private investors, are paid a cost-based price for the renewable electricity they supply to the grid. This enables diverse technologies (wind, solar, biogas, etc.) to be developed and provides investors a reasonable return. This principle was explained in Germany's 2000 RES Act:Slide5

As a result, the tariff (or rate) may differ by technology, location (e.g. rooftop or ground-mounted for solar PV projects), size (residential or commercial scale) and region. The tariffs are typically designed to decline over time to track and encourage technological change. As of 2010, feed-in tariff policies had been enacted in over 50 countries.

The compensation rates...have been determined by means of scientific studies, subject to the provision that the rates identified should make it possible for an installation – when managed efficiently – to be operated cost-effectively, based on the use of state-of-the-art technology and depending on the renewable energy sources naturally available in a given geographical environment.

— 2000 Renewable Energy Sources (RES) ActSlide6

The first form of feed-in tariff (under another name) was implemented in the US in 1978 under President Jimmy Carter, who signed the National Energy Act (NEA). This law included five separate Acts, one of which was the Public Utility Regulatory Policies Act (PURPA). The purpose of the National Energy Act was to encourage energy conservation and develop new energy resources, including renewables such as wind, solar and geothermal power.In 1990, Germany adopted its "

Stromeinspeisungsgesetz

" (

StrEG

), or "Law on Feeding Electricity into the Grid". The

StrEG

required utilities to purchase electricity generated from renewable energy suppliers at a percentage of the prevailing retail price of electricity. The percentage offered Slide7

to solar and wind power was set at 90% of the residential electricity price, while other technologies such as hydro power and biomass sources were offered percentages ranging from 65–80%. A project cap of 5 MW was included.While Germany's StrEG was insufficient to encourage costlier technologies such as photovoltaics, it proved relatively effective at encouraging lower-cost technologies such as wind, leading to the deployment of 4,400 MW of new wind capacity between 1991 and 1999, representing approximately one third of the global capacity at the time.

An additional challenge that

StrEG

addressed was the right to interconnect to the grid. The

StrEG

guaranteed renewable electricity producers grid access. Similar percentage-based feed-in laws were adopted in Spain, as well as in Denmark in the 1990s.Slide8

Germany's Renewable Energy Sources ActGermany's Feed-in Law underwent a major restructuring in 2000, re-framed as the Act on Granting Priority to Renewable Energy Sources ("Erneuerbare Energien

Gesetz

",

German Renewable Energy Act

). In its new form, it proved to be the world's most effective policy framework at accelerating the renewable deployment.

Important changes included:

1. Purchase prices were based on generation cost. This led to different prices for wind power, solar power, biomass/biogas and geothermal and for projects of different sizes.

2. Purchase guarantees were extended to 20 years.

3. Utilities were allowed to participate.

4.Rates were designed to decline annually, based on expected cost reductions, known as "tariff

degression

".Slide9

Since it was the most successful, the German policy (amended in 2004 and 2008) often was the benchmark against which other feed-in tariff policies were considered.Other countries followed the German approach. Long-term contracts are typically offered in a non-discriminatory manner to all renewable energy producers. Because purchase prices are based on costs, efficiently operated projects yield a reasonable rate of return.Feed-in tariffs (FIT) supported growth in solar power in Spain, Germany and wind power in Denmark.

Feed-in tariff laws were in place in 46 jurisdictions globally by 2007.Slide10

The success of photovoltaics in Germany resulted in an electricity price drop of up to 40% during peak output times, with savings between €520 million and 840 million for consumers. Savings for consumers have, conversely, meant reductions in the profit margin of big electric power companies, who reacted by lobbying the German government, which reduced subsidies in 2012.

Energy utilities lobbied for the abolition, or against the introduction, of feed-in tariffs in other parts of the world, including Australia and California. Increase in the solar energy share in Germany also had the effect of closing gas- and coal-fired generation plants. Slide11

Progress of FiTs before 2012The feed-in tariff system has been modified frequently. The feed-in tariff, in force since 1 August 2004, was modified in 2008. In view of the unexpectedly high growth rates, the depreciation was accelerated and a new category (>1000 kWp

) was created with a lower tariff. The facade premium was abolished. In July 2010, the Renewable Energy Sources Act was again amended to reduce the tariffs by a further 16% in addition to the normal annual depreciation, as the prices for PV-panels had dropped sharply in 2009. The most recent modification of the EEG occurred in 2011, when part of the

degression

foreseen for 2012 was brought forward to mid-2011 as a response to unexpectedly high installations in the course of 2010.Slide12

Progress of FiTs since 2012As of July 2014, feed-in tariffs for photovoltaic systems range from 12.88 euro cents per kWh for small roof-top system, down to 8.92 euro cents per kWh for large utility scaled solar parks. Also, FiTs are restricted to PV system with a maximum capacity of 10 megawatts (MW). The feed-in tariff for solar PV is declining at a faster rate than for any other renewable technology. Slide13

As of July 2014, feed-in tariffs range from 3.33 ct/kWh (4.4 ¢/kWh) for hydropower facilities over 50 MW to 12.88 ct/kWh (17.3 ¢/kWh) for solar installations on buildings up to 30 kW and 19 ct/kWh (25.5 ¢/kWh) for offshore wind

. As of August 2014, a revised Renewable Energy Sources Act (EEG 2014, also called EEG 2.0) entered into force, with some modifications to the feed-in tariffs. The aim is to meet Germany’s renewable energy goals of 40 to 45% of electricity consumption in 2025 and 55% to 60% in 2035. The policy also aims to encourage the development of renewable technologies, reduce external costs, and increase security of energy supply.

In the first half of 2014, 28.5% of gross electricity production in Germany came from renewable sources. The Federal Environment Ministry

estimated that

renewables

were to save 87 million

tonnes

of carbon dioxide by 2012

.Slide14

A QUICK EXAMPLE on the FITs in UK:If a household installed a 2.5kW solar system, the Feed-In Tariffs would provide the following benefits: In a typical location in South central England this system should generate about 2,125kWh each year, earning a generation tariff of about £330 a year

[1]

, tax-free;

plus

If, say 1,500kWh is used in the home this would save a further £210 per annum if electricity costs are 14p/kWh;

plus

The remaining 625kWh would be exported, earning about £30 under the export tariff.

Therefore the total benefit would be around £570 to £590

[2]

per year.

[1]

Nov 2012 to Jan 2013 installations at higher rate

[2]

Because most houses without export meters receive the export tariff for 50% of the generation - about £50

.

Slide15

Feed-in tariffTuesday, February 14, 2012.This is apropos a news item regarding incentives to sugar mills for their own power generation (The News, Feb 10). It is worth pointing out that a scheme dubbed feed-in tariff, which provides significant concessions and rebates on the electricity tariff for power from the national grid, has emerged as a major incentive for the use of alternative renewable energy sources, especially the solar energy, in most of the major industrially developed nations around the globe. Started by Germany, through the single-minded initiative of a dedicated energy conscious member of the German federal parliament, the idea caught on with active adoption by most of the developed world, resulting in revolutionary progress in the use of solar energy as an alternative power source during the last few years.

PAKISTAN RENEWABLE ENERGY SOCIETY

Promoting Green Energy For Better TomorrowSlide16

Consumers in the sunbelt countries (which include Pakistan) in the developed world have thus been incentivised to produce power from solar-cell modules, which is not only sufficient for their own use, but the surplus power generated is fed back into the grid with attractive financial rewards. This has, in turn, led to a phenomenal growth in the world solar-energy market, bringing a marked reduction in the price per watt. It is time our government and parliamentarians also thought of implementing such innovative schemes to address our ongoing energy crisis.Dr M

Zafar

Iqbal

Islamabad

PAKISTAN RENEWABLE ENERGY SOCIETY

Promoting Green Energy For Better TomorrowSlide17

BenefitsSome of the benefits and impacts of FIT policies include:The rapid renewable energy development seen in jurisdictions with FIT policies has helped reduce the environmental impacts of electricity generation, while providing valuable air quality and other environmental benefits.

Fixed prices created by FITs for renewable energy sources can also help stabilize electricity rates which can entice new business and attract new investment.

Due to the guaranteed terms and low barriers to entry offered by FIT policies, they have been highly successful at driving economic development and job creation.Slide18

Data from countries like Germany and Spain demonstrate that well-designed FIT policies can positively impact job creation and economic growth. A growing body of evidence from Europe and Ontario, Canada demonstrates that FIT policies have on average fostered more rapid RE project development than other policy mechanismshttp://www.nrel.gov/tech_deployment/state_local_governments/basics_tariffs.htmlSlide19

THANKS