How a Feed-in Tariff Can Help Solve California’s Renewables Problem

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Today, the solar photovoltaics (PV) industry relies on government incentive programs to be competitive in electricity markets. The main government policy lever has been the use of feed-in tariffs (FiTs). An FiT requires utilities to interconnect with private renewable energy generators and purchase the electricity generated at a pre-determined rate. Last year, about 90% of global PV capacity was installed under FiT policy regimes, led by Spain and Germany, which together accounted for nearly three-quarters of world-wide installation capacity.

FiTs have been slow to gain traction in the United States. However, in the last several months, the municipal utilities of Gainesville, Florida, San Antonio, Texas, and Sacramento, California have moved to establish limited FiTs for solar PV generators.

Now, in what will be the biggest boost yet to FiTs in the U.S., the California Public Utilities Commission (CPUC) is proposing to initiate a 4-year program to auction contracts for a total of 1,000 MW (or 1 GW) of solar PV in distributed generation configurations from 1 MW to up to 20 MW in size. Distributed generation means the generation of electricity from smaller and dispersed projects, often located within the utility distribution network, in contrast to large, centralized generation sources typically associated with coal, nuclear, or hydropower.

While the proposed FiT will be an important step forward for solar PV, we have to wonder why the CPUC is proposing only 1 GW of PV capacity spread over 4 years. You see, California has a renewables problem. The state is poised to raise its renewable portfolio standard (RPS) – the share of electricity that the state’s utilities must supply from renewable energy sources – to 33% by 2020 from the current 20% by 2010. With the state’s three investor-owned utilities already far behind in meeting the 2010 target, reaching the 33% target will require dramatic action, but 1 GW of PV capacity represents only about 2% of the additional 2020 new renewables requirement.

A higher threshold for distributed solar PV is both feasible and cost-effective. According to the CPUC, 5 GW of distributed PV can “easily interconnect . . . at little cost.” And another CPUC analysis finds that at an installed price of $3.08/W, distributed PV could supply 15 GW at costs similar to relying on other renewable sources. In contrast, the CPUC estimates that even under the best of circumstances, it will take at least 14 years and cost $12 billion to construct the seven additional transmission lines needed to meet the RPS with centralized renewable generation sources. And as recently covered in a USA Today article, that assumes that these large centralized projects can all be sited and built.

While the CPUC should be commended for taking an important first step with this FiT proposal, Applied Materials urges a stronger near-term commitment to solar PV via the feed-in-tariff, which will enable PV manufacturing and deployment scale and more quickly drive down solar costs for the state and its ratepayers.

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