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FIT in the USA

Constitutional questions about state-mandated renewable tariffs.

Fortnightly Magazine - June 2010

5 percent of its total energy from wind power, Demark nearly 20 percent, and Germany met its 12.5-percent goal of renewable electricity by 2009, a year earlier than expected. Germany’s FIT program has created one of the world’s largest solar energy markets, and Spain is close behind.

The European debate on renewable energy incentives has considered both FIT policies and renewable portfolio standards (RPS). According to Rickerson and Grace , Italy, Sweden, and the United Kingdom initially favored RPS, while Germany, Spain, and other countries favored FIT. Consequently, Germany has 200 times the installed solar capacity and 10 times the number of renewable energy jobs created as does the UK. 6 In Germany, the current debate concerns whether the expense of FIT is too high compared to what the public is willing to support. 7 The average German electric bill has increased by roughly $3 per month (e1.45/month) 8 over the period of FIT implementation. The German public generally has supported the increase, especially since many individuals have taken advantage of the incentives to install their own renewable energy generation systems.

For the renewable energy developer, the FIT decreases investment risk. A FIT guarantees an investor or developer a long-term contract at a secured price with a return on investment of 8 percent to 9 percent. By contrast, RPS policies require developers and investors to secure contracts, which might not be long-term, for energy and for RECs. Fraunhofer Institut research found that capital costs for renewable energy investments are significantly lower in countries using FIT than in those countries using policies that create higher risks of future return on investment. The European Commission concluded that FITs are more effective than quota-based systems like RPS.

U.S. FIT Policies

FITs historically haven’t been sanctioned in the United States. The most prevalent renewable energy policy enacted by states is the RPS. The two are similar to the extent that they only qualify renewable power that is actually produced. The FIT does this by actually linking the renewable subsidy to the price paid for renewable power, while the RPS does this by creating a separate tradable renewable attribute, or REC.

However, the momentum and impact of European FIT policies have dwarfed RPS initiatives in the United States, and some states have begun to propose legislation and adopt policies similar to European FIT. Utilities and industry groups are considering innovative ways to encourage development of renewable resources, and FITs have been mentioned as a potential policy option. 9 As many as 10 states have introduced actual FIT legislation, while a handful of others are considering FIT policies. In addition, a federal FIT has been proposed by Representative Jay Inslee (D-Wash.).

FITs have been discussed in 18 states: Arkansas, California, Florida, Hawaii, Illinois, Indiana, Iowa, Maine, Michigan, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia and Washington State. Below, are elements of some of the early FIT implementation in Vermont and California.

Vermont: Vermont was the first state to implement a FIT in 2009 by passing H. 446. In 2008, the Vermont