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Advanced Renewable Tariffs & Electricity Feed Laws

Article by: Paul Gipe


Since 1991 when Germany introduced its ground-breaking Electricity Feed Law, the country has installed more than 16,000 MW of wind generating capacity–more than twice that installed in the United States. One-third of all German wind capacity is owned by farmers, households, small businesses, and co-operatives. In 2004 Germany installed 360 MW of solar photovoltaics representing US$3 billion in investment. Today Germany generates 9% of its electricity with new renewables, mostly wind, small hydro, and biomass. Spain, France, and a host of other countries have followed Germany’s example and introduced similar Feed Laws. This has resulted in the spectacular growth of wind energy in Europe. Spain now ranks second in installed wind capacity worldwide, surpassing that in the United States.

In 1999, the German parliament amended the Electricity Feed Law and updated it for the new millennium. The Renewable Energy Sources Act covered additional technologies and introduced a multi-tiered system for determining the price paid for renewable sources of electricity. The French government followed the German example and introduced what it called Advanced Renewable Tariffs.


What Are Advanced Renewable Tariffs?

Advanced Renewable Tariffs permit the interconnection of renewable sources of electricity with the grid and specify the price paid for the electricity generated and the amount of time the payments will be made–often 15 to 20 years.


How Do They Work?

Via a public policy debate, society (a state assembly, congress, or parliament) determines a rate to be paid for every kilowatt-hour (kWh) generated by a renewable source of energy. This rate varies from one form of renewable energy to another.


How Are Prices Determined?

The payment for wind energy in the original German Electricity Feed Law was simply 90% of the retail tariff. In Advanced Renewable Tariffs, economists and engineers use a more complex approach, calculating the prices per kWh needed for various technologies to produce a profit under varying conditions. They then report their findings to a legislative assembly, where the final price is determined by a transparent political process. In this manner prices can be tailored to technologies, regions, and sectors of the economy.

For wind energy in Germany and France, Advanced Renewable Tariffs specify payments in several tranches: one price during an initial period for all wind turbines, and subsequently a second period where the price is based upon the productivity of the wind turbine. In the second period, higher prices are paid for wind turbines that are less productive than a “reference” turbine, lower prices for turbines that are more productive. This is to encourage installation of wind turbines across the countryside instead of concentrating them only in areas with the highest winds.

France, for example, sets a sliding scalet depending upon the productivity of the wind turbine at its specific site. Prices also very whether the wind turbine is in metropolitan France or its former colonies. Wind turbines operating in the overseas departments and territories and on Corsica are paid more than mainland France.

Germany’s Advanced Renewable Tariffs set two tiers that apply across the entire country. In Germany, the fixed price for new installations gradually declines every year. Further, the prices are revisited by parliament (the Bundestag) every two years. This provision encourages economic efficiency and allows for tailoring the program to changes in the economy. Prices for solar photovoltaics were increased in 2004, resulting in rapid growth of the German solar industry.


How Do Advanced Renewable Tariffs Differ from Net-Metering?

Net-metering is often limited both in the size of renewable systems used (often only 10 kW) and in the total amount of capacity permitted on the system. Moreover, net-metering by definition does not include surplus generation or electricity delivered to the grid in excess of customer demand. Advanced Renewable Tariffs permit ratepayers, for example, to install the most cost-effective wind turbine for their application. Under net-metering, no customer can justify producing excess generation which is effectively delivered to the grid gratis. This effectively limits the size of the wind turbine to that which is less than economically optimum.

How Do Advanced Renewable Tariffs Relate to Renewable Portfolio Standards?

Most of the public defines Renewable Portfolio Standards (RPS) as simply targets, for example 10% of electricity supply from renewables by a certain date. Renewable Portfolio Standards do not necessarily specify how to arrive at such a target. Many mistakenly assume that to meet RPS targets, bidding is required to award contracts and tradable credits are required to pay for the increase costs of renewables relative to existing embedded generation. Bidding is only one way to meet RPS targets, Advanced Renewable Tariffs are another. With Advanced Renewable Tariffs there is no need for tradable credits or green pricing.

Bidding is cumbersome, legalistic, and often excludes community and landowner participation. Because of the sophisticated gaming strategies used by bidders, there are heavy up-front legal and engineering costs associated with bidding not only to the bidders but also to the state or province holding the auction. These up-front costs deter individual farmers, as well as community groups, from participating in bidding. This leads to further concentration of renewables in the hands of the power generators.

The most egalitarian mechanism for quickly bringing the most new renewables on line is Advanced Renewable Tariffs.


Have Advanced Renewable Tariffs Been Used Before in North America?

Much of the wind-generating capacity operating today in California was installed under a program quite similar to Advanced Renewable Tariffs. In the early 1980s, the California Public Utility Commission introduced what were then called Standard Offer #4 contracts. These contracts guaranteed a pre-determined price for a period of ten years and a contract for purchase of the electricity for up to 30 years. Unlike modern Advanced Renewable Tariffs, the price under these contracts increased gradually during the period they were in effect. Nearly 1,500 MW of the 2,000 MW currently operating in California today were installed under this program, launching the world’s commercial wind industry.


Who Pays the Difference?

Society–ratepayers–pay for the all the kilowatt-hours generated. The costs of successful programs are borne by the consumers of electricity–not taxpayers. This is critical to the success renewable tariffs. Price setting must be divorced from the legislative budget process.


Who Should Qualify?

For maximum rural economic benefit, premium payments under Advanced Renewable Tariffs should be designed to encourage particpation by farmers, co-operatives, and other small holders. For maximum deployment of renewable generation, renewable tariffs should be open to all parties.


Why Now?

Energy is politically in play and the deregulation fiasco opens the door to innovative proposals.


Where are Advanced Renewable Tariffs Being Used?

Germany, Spain, France, Austria, and Portugal are just a few of the countries using renewable tariffs. There are 16 countries in the exanded European Union now using Electricity Feed Laws. In Spain, wind developers can opt for either a fixed payment or take the market price. All have chosen the fixed price and as a result, Spain has become the world’s largest wind markets outside Germany. In 2004 Spain surpassed the USA in total installed wind capacity.

Turkey, the Czech Republic, China, and several states and provinces in North America have either passed renewable tariff legislation or are awaiting implementation.

*Paul Gipe is the author of several books about wind energy, including Wind Power: Renewable Energy for Home, Farm, and Business (ISBN 1-931498-14-8), 2004.