Advanced renewable tariffs (ARTs) are posted rates under which utilities acquire renewable electricity from nonutility generators located within their service boundaries. Under ARTs, generators can lock in a fixed purchase price for the electricity they produce over long periods of time, as much as 20 years in some instances. The returns generated through these tariffs are sufficient to recover installation costs along with a modest profit.
available in more than a dozen nations in Europe as well as the
Unlike standard buyback rates, ARTs use a production-cost-based methodology, based on the production costs of the applicable renewable energy technologies and sizes, to determine the rates. Thus, the rates will be set differently for solar, wind, biomass, biogas and other renewable generators.
Unlike standard buyback rates, advanced renewable tariffs (a term often used interchangeably with “renewable buyback rates” and/or “feed-in tariffs”) use a production-cost-based methodology, based on the production costs of the applicable renewable energy technologies and sizes, to determine the rates. In order to achieve similar returns from investments in such resources as solar, wind, hydro or biogas, these tariffs will be set at different levels as determined by each resource’s production costs.
Several utilities in Wisconsin voluntarily offer renewable energy buyback rates to customers, and some offerings have approached real-world production costs. However, the practice has been to deploy these offerings in small increments, which generally result in full subscribership within in less than a year. When these offerings reach full capacity, the utility discontinues the buyback rate, which triggers a fall-off in demand for that generator type. The absence of long-term market support poses significant uncertainties to small renewable energy businesses, such as solar installers, small wind turbine manufacturers and design-contractors of anaerobic digester systems for food processors and farms.
There is currently no market-based pricing mechanism available for the value added by renewable energy. Small renewable electricity generators find it uneconomical to sell power to an electric provider through a competitive solicitation process. In conformity with the Public Utility Regulatory Power Act of 1978 (PURPA), all electricity generators, irrespective of size and resource used, are paid the wholesale price as set by the regional grid operator, which is generally assumed to represent the marginal cost of the next increment of electricity on the system (also defined as the avoided cost of power).
;However, today’s wholesale prices have little to do with the costs of
building a new source of renewable generation. They are much more influenced
by the operating costs of legacy coal plants built in the 1960’s and 1970’s,
whose original construction costs have been fully recovered and are no
longer a part of the utility’s cost structure. It simply is not possible to
finance and build a small-scale renewable generating unit when wholesale
power prices are set by the operating costs of a 40-year-old coal-fired
power plant. As long as these legacy plants remain the default sources for
additional electricity in the Midwest region, state utilities will be
disinclined to buy back electricity from small scale renewable energy
producers at rates that are high enough to encourage continued investment.
The use of a renewable tariff yields a simple payback period that is more likely to attract sustained investment in these generation systems than strategies that “buy down” the initial investment. Buydown mechanisms such as grants and incentives come and go over time. Their availability is often limited and the competition for these funds is often fierce. If the demand for dollars exceeds the amount budgeted, some deserving projects will go unfunded. The transactional cost of applying for and administering grants and incentives is high. Moreover, grants and incentives do not provide the transparency, longevity and certainty that substantially drive market development of small-scale renewable generation. Renewable tariffs are a more natural market-based means of valuing the benefits of using renewable energy to generate electricity.
DG Tariff = LMP Day Ahead
Hourly Prices +
; Distribution Benefits Adder +
;;;;;; Renewable Energy Credit Premium
Chart Showing Indexing To Market Prices
600 kW Anaerobic Digester Facility with the following
; 600 kW digester energy
system (4,000,000 kWh/year);
; cost $2,000,000;
; O&M: $0.025/kWh;
; solids sales: $40,000/year;
; methane offsets: $20,000/year
Interaction of Incentives – simple payback periods
||Avoided Cost Electric Buyback Rate = $0.05/kWh||ART Electric Buyback Rate = $0.11/kWh|
|No Grants||11.6 years||4.8 years|
|$250,000 Focus Grant||10.2 years||4.2 years|
|$500,000 REAP Grant||8.7 years||3.6 years|
|$250,000 Focus Grant + $500,000 REAP Grant||7.3 years||3.0 years|
Chart Showing Production-Cost Based Rates
Possible “Adequate Incentive” ART Rates for a 10-Year Contract (cents/kWh)
The fate of ARTs, in 2009, was that the Public Service Commission of Wisconsin (PSCW) did not order mandatory tariffs. The PSCW did, however, strongly recommend that the electric utilities voluntarily provide some ART offerings for their customers.
The fate of Clean Energy Jobs Act was that it was never brought to the floor of the Senate for a vote – essentially, this killed the bill.
A Policy Maker's Guide to Feed-in Tariff Policy Design
NREL [Couture, Cory and Williams 2010]
“Contemporary FIT policies offer a number of design options to achieve policy goals for renewable energy deployment. However, careful policy design is crucial to ensuring success. Policy designers must weigh how different design options will function together as an integrated framework. This evaluation can help ensure that renewable energy develops at both the pace and scale desired and can help avoid unintended consequences such as runaway program cost. As this report demonstrates, FIT policy structures can differ widely among jurisdictions, reflecting a broad spectrum of policy objectives. This ability to adapt to particular situations – and address particular policy goals – is an important element in the success of FIT policies. Their ongoing success at fostering rapid RE growth is likely to continue to fuel interest in these policies worldwide.”
“The use of feed-in tariffs (FIT) is gaining popularity in the United States as a policy option for encouraging renewable energy (RE) development. A number of states have recently implemented FITs and several utilities have launched utility-specific FIT policies to help meet their renewable portfolio standards (RPS). Experience around the world suggests that FITs could be used effectively to meet a number of U.S. state policy goals, including job creation, economic development, and meeting state RE targets.”
Feed-in Tariff Policy: Design, Implementation, and RPS Policy
NREL [Cory and Couture 2009]
“Feed-in tariff (FIT) policies are implemented in more than 40 countries around the world and are cited as the primary reason for the success of the German and Spanish renewable energy markets. As a result of that success, FIT policy proposals are starting to gain traction in several U.S. states and municipalities. A number of states have considered FIT legislation or regulation, including Florida, Hawaii, Illinois, Indiana, Maine, Massachusetts, Michigan, Minnesota, New Jersey, New York, Oregon, Rhode Island, Virginia, Washington and Wisconsin; and a federal FIT proposal has also been developed. Three other municipal utilities have also proposed FIT policies, including Los Angeles, California (Los Angeles 2008); Palm Desert, California; and Santa Monica, California.”
Federal Energy Regulatory Commission Order Granting Clarification and Dismissing Rehearing (Issued October 21, 2010)
FERC clarification that allows states to set a utility’s avoided costs based on
all sources able to sell to that utility means that where a state requires a
utility to procure a certain percentage of energy from generators with certain
characteristics, generators with those characteristics constitute the sources
that are relevant to the determination of the utility’s avoided cost for that
California Attorney General’s Response to Request for Briefs Regarding Jurisdiction to Set Prices for a Feed-In Tariff
Evaluation of different feed-in tariff design options – Best practice paper for the International Feed-In Cooperation. 2008. German Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU).
The Economic Impacts of Vermont Feed in Tariffs. 2009. Vermont Department of Public Service.
Economic Benefits of a Comprehensive Feed-In Tariff: An Analysis of the REESA in California. 2010. University of California, Berkeley.
Feed-in Tariffs and Renewable Energy in the USA – a Policy Update. 2008.
Feed-In Systems in Germany and Spain and a comparison. 2005. German Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU).
Feed-in Tariffs (FIT): Frequently Asked Questions for State Utility Commissions. 2010. The National Association of Regulatory Utility Commissioners.
A Primer on Renewable Energy Producer Payments (REPP’s). 2008. RENEW Wisconsin.
Advanced Renewable Tariffs for Wisconsin Analysis and Case Study. 2009. University of Wisconsin Madison Energy Analysis & Policy Certificate Capstone Project.
Paying for Renewable Energy: TLC at the Right Price - Achieving Scale through
Efficient Policy Design.
DB (Deutsche Bank AG) Climate Advisors.
FiTs Adjust while Delivering Scale in 2010. DB (Deutsche Bank AG) Climate Advisors.
GET FiT Program. DB (Deutsche Bank AG) Climate Advisors.
Electricity Feed Laws, Feed-in Laws, Feed-in Tariffs, Advanced Renewable Tariffs, and Renewable Energy Payments. Webpage. Paul Gipe
Summary of California Feed-In Tariffs. California Public Utilities Commission
Feed-in tariffs in America : Driving the Economy with Renewable Energy Policy that Works. April 2009. New Rules Project and Reinrich Boll North America.
Feeding the Grid Renewably - Using feed-in tariffs to capitalize on renewable energy. February 2008. Pembina Institute.
Basic Elements of a Proposed Renewable Energy Feed-In Tariff Bill. 2007. World Future Council.