The feed-in tariff: tripping up unexpecting countries

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The arrival of the feed-in tariff (FiT) was a much-anticipated one, something that would boost the solar sector and give countries around the globe the incentive they needed to convert from conventional energy sources into the renewable sector. No one could have predicted the upheaval that could have been brought with this seemingly positive move.

Spain

The first and most prominent downfall came in the shape of Spain. It introduced its generous FiT rate of up to €0.44/kWh back in 2007 when the government expected a steady stream of investment. In response, there came a flood.

The country was left accounting for more than 40% of the world’s total solar installations in 2008. This huge uptake gave the powers-that-be no choice but to revise the FiT rate, causing Spain to became one of the principal causes of the downturn in the solar industry.
Some might say that the evident success stories of other countries like Germany caused a trend to be set for others. Yet in their infancy, unrevised policies could simply not cope with the unexpected.

Unlike Germany, Spain had no system built in to reduce tariff rates if its capacity targets were exceeded. Indeed, there were no stepped reductions, or digressions, at all. There was no ability to react.

While the Spanish government had expected it would not see 400MW of solar capacity in the country until 2010, by the autumn of 2007, some 350MW had already been installed. Chinese solar firms were sending container after container, laden with solar panels, to the country.

Scrambling, the government upped its target to 1,200MW. But as it became clear the market would exceed that limit, too, the boom became a frenzy as developers rushed to connect their projects to the grid before last September, when the government altered the tariff, dropping rates by 30%.

Many businesses have since felt burned by the boom and bust engendered by the tariff, facing accusations of fraud, based on claims that they had connected to the grid by the government’s deadline of Sept. 29 of that year.

The government’s revised tariff has set a hard cap of 500MW to be built, most of this as more costly rooftop installations. Revisions to the tariff are made on a quarterly basis. Demand remains high, however, with 2,468 applications having been received recently, according to the Ministry of Industry, Tourism and Trade.

Czech Republic

Unfortunately, this isn’t the end of the tale. Next to fall at the foot of disaster was the Czech Republic. Since the state began supporting solar energy projects in 2005, the country has seen a similar reaction to the support of solar PV as Spain. The FiT rate, locked in for 20 years, fixed the price of solar power between €0.50/kWh and €0.52/kWh and limited cost decreases to 5% per year, even as the cost of producing solar energy falls 10% annually, according to the Energy Regulatory Commission. This FiT rate led to an outstanding 24,678% increase in solar energy plants, from nine in 2005 to 2,230 as of August 2009, as investors came to cash in on guaranteed profits.

Korea

Next on the chopping board was Korea. At a meeting on August the 24th, the Korean Green Growth Committee proposed plans to decrease support for large-scale solar systems. New government proposals also suggest a cap of 98MW for 2009, 132MW for 2010, and 162MW for 2011, well below expectations of 340MW, 400MW, and 500MW in 2009, ’10, and ’11, respectively.

In terms of Korea’s prior solar program, which was considered to be highly attractive with 20-year FiT of €0.37/kWh for systems up to 30kW, €0.35/kWh for systems between 30 and 200kW, €0.32/kWh for systems below 3MW and €0.27/kWh for systems above 3MW.

Under the new program, 2009 subsidy could be increased for small systems, decreased for large systems. The proposed rates, which are currently under discussion are as follows: a) below 30kW system – increase subsidy by 10%, b) below 200kW system – increase subsidy by 5%, c) below 3MW system – decrease subsidy by 5%, d) above 3MW system – decrease subsidy by 10%.

USA

And, of course, this story would not be complete without a similar road-to-failure story from the U.S. The Salt River Project, the main utility in Phoenix, cut its homeowners’ rebate by 10% in June 2009. The utility spent more than it budgeted for solar power, a result of a surge in demand as more solar installers moved into Arizona and government incentives kicked in.

California has steadily and somewhat quietly been bringing down its rebates with an imminent 29% cut in rebates offered within the service area of Pacific Gas and Electric, the dominant utility in Northern California.

Even if falling rebates cancel out some of the solar panel price slump, more innovative financing strategies are also helping to make solar affordable for homeowners. This year about a dozen states (following moves by California and Colorado last year) have enacted laws enabling solar panels to be paid off gradually, through increased property taxes, after a municipality first shoulders the upfront costs.

So, let this be a lessen learnt to all the countries which are currently molding the look of FiT rates, such as the UK, which is nearing the end of its three month consultation period. A good market strategy is a revised market strategy – rushing into a policy driven by profit is never a recipe for success.

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