Lessons from the Gainesville Feed-In Tariff Program

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Lessons from the Gainesville Feed-In Tariff Program
September 1, 2009
By Cara Tinio
Apollo News Service
At the start of the 20th century, the city of Gainesville, Fla., installed modern municipal water, electricity and sewer systems, which made it an attractive location for the University of Florida and helped it become a major educational and cultural hub in the state. Now, more than 100 years later, Gainesville is once again taking bold steps, this time to become a national clean energy pioneer.
On Feb. 5, 2009, Gainesville Regional Utilities (GRU) reached an agreement with the city to implement a landmark feed-in tariff program to promote the use of solar photovoltaic (PV) energy in the area. Under the program, GRU customers who invest in solar PV systems can sell the electricity generated directly to GRU at a fixed price of $0.32 per kilowatt hour for 20 years. The rate paid to new customers decreases each year, as technology evolves and solar PV energy generation becomes more cost-efficient.
Although other feed-in tariff programs have been implemented in the U.S., the GRU program is the first and only one patterned after those that have successfully encouraged renewable energy generation in Europe. Other feed-in tariffs in the U.S. are based on factors like the purchasing utility's cost savings, the cost of climate mitigation measures, or the value of negative impacts on health and air quality. The European-style feed-in tariff is based on the estimated generation costs of the renewable energy system, plus a mandated rate of return on investment. In addition to being easier to calculate, this guarantees a profit for renewable energy producers because it takes into account actual costs of production.
By offering a long-term guaranteed profit, feed-in tariff programs help make renewable energy generation a stable and attractive investment. Feed-in tariffs have been credited with significantly boosting renewable energy generation in Europe; in 1990, renewable electricity generation in the European Union started growing by an annual average of 3.4 percent, accounting for 14.6 percent of total electricity produced by the end of 2006. Experts predict that Gainesville's feed-in tariff program will increase local installation of solar PV systems by an average of 1000 kilowatts per year over the next two decades. As the utility purchasing the generated solar PV electricity, GRU is allowed to pass on the cost of feed-in tariff payments to its customers, though this is estimated to increase consumer costs by less than one percent.
The program was implemented in March 2009. Less than a month later, GRU had already received proposals for approximately 12 megawatts of solar PV energy. To date, GRU has accepted enough applications to generate sufficient solar PV electricity to meet the program's targets through 2016. However, the utility states that it "will continue to accept and approve applications...to fulfill targets for future years." There are currently 36 solar PV systems already installed in the GRU service area, with a total capacity of 210 kilowatts.
The GRU feed-in tariff program has the potential to attract major new renewable energy investments and provide a vital boost to the local economy. More than 220 companies currently produce, sell or install solar PV products in Florida alone. While the program does not require that solar PV equipment be sourced from or installed by local or in-state companies, products and service providers must meet all applicable national and local standards and be licensed to operate in Florida.
Indeed, solar companies in the Gainesville area reported that the initial implementation of the feed-in tariff program was good for business. Wayne Irwin, president of Pure Energy Solar, a contractor based in the city, says the program will "grow the industry." Mike Antheil, executive director of the Florida Alliance for Renewable Energy, agreed that investments could amount to as much as $50 million in the long run. However, because preference for local solar companies was not written into the program, it may also attract solar companies from out-of-state who aim to capitalize on the expected growth.
The GRU feed-in tariff program has drawn other criticisms now that implementation has begun.
"It was poorly designed. ...I think the rigor in reviewing applications was not there," said Rhone Resch, president and CEO of the Solar Energy Industries Association (SEIA), at the PV Industry Forum held in Munich, Germany last May. "So many applications were put in place and then accepted by project developers who have never developed projects in the past...What you are going to find is the first tier of projects that have received acceptance probably won't ever get constructed."
Harald Kegelmann, CEO of Advanced Solar Technologies, another Gainesville-based solar installation company and SEIA member, disagrees with Resch. "GRU has done an excellent job designing a FIT policy in a very short time," he stated. "But being the first always means that there are growing pains." Mr. Antheil agrees, calling the GRU feed-in tariff a "living, breathing program" and claiming there were bound to be "hiccups" and confusion at the start of implementation.
The GRU feed-in tariff program attracted what Mr. Kegelmann calls "speculative projects and solar carpet baggers." The lack of an application fee resulted in proposals that could not be implemented because they overstated the potential system size, or were for buildings that had yet to be constructed. Furthermore, since applicants were not required to show that they had the necessary funds to actually pay for the system, the queue for project proposals filled up very quickly. As a consequence, the participation of homeowners, schools and non-profit organizations was limited, lowering these sectors' chances of benefiting from the program. In addition, although the program has stimulated local interest in solar PV installations, Mr. Kegelmann estimates that 78 percent of the projects in the pipeline for the next six years will be handled by out-of-town companies, meaning fewer investments going into the local solar PV industry and fewer secondary benefits trickling down into the greater Gainesville community.
However, all is not lost for feed-in tariffs. Mr. Antheil assures that the GRU team overseeing the implementation of the program is "committed to making the program work" and is seeking to address the implementation issues that have emerged.
Mr. Kegelmann also recognizes that feed-in tariffs remain a good way to keep cash flowing into the community "and make the community more independent of spikes in energy prices." He recommends increasing annual capacity quotas at the start of implementation to prevent an initial rush of applications, many of which may be unqualified. At the same time, stricter requirements – such as application fees and inclusion of drawings of the proposed system, as well as rules requiring projects to be built on existing structures – are necessary to encourage applications for truly feasible projects. Mr. Kegelmann has proposed additional measures to build awareness of renewable energy investments, broaden local participation in the program, and help stimulate the local economy. These include educating local investors; engaging stakeholders to help validate feed-in tariff rates and channel business to local firms; and setting aside a portion of the program quota for households, schools, public buildings and non-profit organizations.
The GRU program has become one of America's most visible feed-in tariff programs. The recommendations arising from the Gainesville experience will help to not only fine-tune the GRU program, but also to help ensure success for similar programs in the future.

Feed-in tariffs will continue to increase the use of solar and wind power in America and
Ohio!

Dennis Spisak
Mahoning Valley Green Party
Ohio Green Party
www.ohiogreens.org
www.votespisak.org/thinkgreen/