Feed-in Tariffs Take Center Stage at AREDAY 2010 Renewable Energy Summit

By Lee Barken, CPA, LEED-AP

Among the critical topics presented by industry luminaries at this year’s American Renewable Energy Day (AREDAY) summit in Aspen, Colorado, the theme of financing emerged as a significant roadblock to renewable energy development.  One of the policy mechanisms, the Feed-in Tariff (FIT), was comprehensively analyzed by Craig Lewis, founder of the FIT Coalition.

“The FIT coalition is focused on identifying best policy practices from around the world for scaling cost-effective renewable energy in a timely fashion and bringing those policy mechanisms to the U.S.,” said Lewis.

A Feed-in Tariff is a contract that guarantees three critical elements for project developers:  1. A fixed price payment (typically a prescribed cents per kilowatt hour rate).  2. An interconnect agreement to provide access to the grid.  3.  A long term contract length (typically 20 years).

Global Interest

In other words, a Feed-in Tariff is like a pre-approved, pre-defined Power Purchase Agreement (PPA) with a utility company.  The mechanism has been wildly popular around the world and has driven much of the growth in Germany, Spain and other leading solar markets.

“86 percent of solar PV that was deployed in the world in 2009 was driven by a Feed-in Tariff,” said Lewis.  “We would not have a solar industry if we did not have a Feed-in Tariff.”

Price Considerations

The success of any Feed-in Tariff is based on setting an appropriate price and making adjustments to the program over time.  “We have to set the price at a level where you actually attract development.  Otherwise, you’re not going to have any projects,” said Lewis.  “You also have to make sure that a FIT is fair to the utility, or purchasing side of the energy contract.”

According to Lewis, that fairness is provided by bundling the environmental attributes (also known as Renewable Energy Credits, or RECs) into the FIT transaction.  By incorporating the RECs, the utilities can use energy produced under a FIT agreement to meet their Renewable Portfolio Standard (RPS) compliance obligation.

Financing Opportunities

Perhaps most importantly, a contractually obligated energy offtaker provides a defined revenue stream that project developers can leverage to obtain financing.  This happens because, from an investor’s perspective, project risk is reduced by any policy mechanism that guarantees a long-term purchase contract.  Ultimately, the creation of a robust investment vehicle for these projects is the key to unleashing massive scale renewable energy growth.

“If you care about the solar industry, you must care about the Feed-in Tariff,” said Lewis.

Lee Barken, CPA, LEED-AP is the IT practice leader at Haskell & White, LLP and serves on the board of directors of CleanTECH San Diego and the US Green Building Council, San Diego chapter.  Lee writes and speaks on the topics of renewable energy finance, green building, IT audit compliance, wireless LAN technology and volunteers for the FIT Coalition. You can reach him at 858-350-4215 or lbarken@hwcpa.com.

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