Let’s hear it for the feed-in tariff

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SEMI PV Group has released a policy document intended to promote the widespread awareness and understanding of public policy best practices in support of solar technology. The white paper, ‘Advancing a Sustainable Solar Future: SEMI PV Group policy principals and recommended best practices for solar feed-in tariffs,’ places the FiT under the spotlight, dissecting this incentive in order to display its innards as the number one for a sustainable solar future.

Reading through the 30-page document, it soon became clear that it was going to display the FiT as the very best way to accelerate the PV market, and I have to say, I agree. The paper clearly demonstrates how and indeed why the feed-in tariff has become the most popular and clearly successful incentive policy designed for the acceleration of the PV industry as a whole.

The results of global research into solar energy incentives display what the PV Group believes is necessary for best practice policy in the ‘Perfect Industry’. SEMI states that incentives must be sufficient to drive expected demand, stable and predictable, transparent and streamlined, accessible and programmed with a transition to grid parity in mind.

Although at first glance this seems like a lot to ask for, the FiT is actually capable of fulfilling this criterion, as SEMI believes it already has. The paper states, “When surveying global solar energy incentives, the policy that most closely matches the principles laid out (…) is the feed-in tariff.”

So, apart from this necessary criterion, what separates the FiT from other incentives? According to this white paper, the FiT is the perfect solution to all incentive problems as it is low cost, low-risk, provides cash payments (not tax credits), eliminates transaction costs and is versatile.

So the question is, if the FiT is so incredible, ticking all the right boxes and proving itself in several respects, why isn’t everyone implementing it with ease? Well, the answer is segmented. While I am a self-confessed feed-in tariff fan, I will agree with anyone who says that it is not the simplest of policies, and should not be taken on without significant research.

SEMI seems to share this opinion, as it says, “in designing feed-in tariffs, it is not enough to create generous, long-term feed-in tariff payments – it is important to consider the stability and viability of the proposed policy.” While SEMI is clearly blowing the FiT’s horn, it also gives quite a comprehensive overview of what is needed in order to successfully set up an FiT policy that will enable sustained solar energy industry growth.

SEMI’s six musts

1. Technology differentiation. Feed-in tariffs need to be tailored to target all types of technology with different rates in order to create diverse generation portfolios that include solar electricity. “SEMI PV Group believes that national feed-in tariffs are the optimum solution, and that FiTs should be tailored to the specific context and objectives of the country that is implementing them.”

2. Generation cost-based rates. The FiT rate should reflect the specific generation cost of PV, plus a reasonable profit. This ensures that the incentive level will be sufficient to drive demand. “The majority of Europe’s FiT rates are, and have been, based on generation cost.”

3. Interconnection requirements. The FiT is a powerful policy because it typically requires that solar electricity generators must be connected to the grid, and that any electricity fed onto the grid must be purchased.

4. Fixed price payments. These significantly lower investment risk and policy cost. The International Energy Agency claims that, “fixed price feed-in tariff policies can reduce financing costs by 10-30%.”

5. Long-term payments. These also allow the generation cost of PV systems to be amortized over a greater number of years, enabling lower FiT rates and accelerating the timeline on which the hedge value of PV can be captured as electricity prices rise. Also, they more closely align with the service lives of PV systems, reducing the risks associated with re-contracting after the FiT term ends.

6. Predictable declines.  Although FiTs can be adjusted both up and down, the overall trend should be downward in order to place pressure on PV prices.

While this list appears daunting, it demonstrates the reality of what needs to be taken into account before implementing this incentive policy. While this is true, the white paper also outlines that the time to act is now, “The ability of feed-in tariffs to attract low-cost capital from a broad range of different investor types has become even more important in the wake of the financial crisis,” which is something everyone wants to hear at present. 

It is apparent from the timing of this paper, alongside the often alluded-to success of PV in 2010, that the FiT will make a huge appearance in this market. Many countries globally have already productively implemented this policy. We can certainly expect this number to increase in 2010, with anticipated rates on the horizon from countries such as the UK; this document can now be used as a valuable aid for the governments in these locations.

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