Complacency is always a barrier to change. Just as the Captain and crew of the Titanic became complacent when the ship was deemed "unsinkable" we must not become complacent and not do what is proven and obvious - Feed in Tariffs.

Feed in Tariffs - the proven road NOT taken…Why?

Peter Lynch | SunSeries.net

America and the renewable energy industry need a nationwide Feed in Tariff (FIT) to kick start the industry, restore America’s leadership role in renewables and accelerate the expansion of the renewable industry worldwide.

The rapid expansion of the renewable energy industry is a win-win for the world as a whole, for future generations and is a critical component to the long-term survival of humanity.

Why is a FIT critical?

The world is running out of cheap fossil fuels and there is no other replacement source of energy abundant enough to carry us very far (no more than 40-50 years) into the future. If we were not running out of “cheap” fossil fuels we would NOT be drilling for oil through 20,000 feet of water and then 10,000 feet of ocean bedrock to reach an oil field - an expensive, technically complex, dangerous and overall risky investment considering the number of uncontrollable variables to contend with.

Current world energy use is approximately 16 trillion watts – Terawatts (TW) per year. As you can see below in the summary the numbers speak for themselves and the obvious and only, technically feasible (at this time), long term solution is renewables.

Summary: The amount of direct solar energy that arrives on Earth during an average four-week period is roughly 1,853 TW/yrs., which is greater than the total remaining reserves (1,755TW/yrs.) of all fossil fuels.

Note: the numbers are from the BP Statistical Review of World Energy 2008. The direct sunlight number is from only land masses and is discounted 65% due to losses through the atmosphere and clouds.

Conclusion: Given the overwhelming supply advantage and renewable nature of solar energy the obvious strategy should be to accelerate the worldwide development of renewables as quickly as possible.

How can the expansion of the Renewable Energy Industry be accelerated?

The fastest and simplest way that I am aware of to accelerate the expansion of the renewable energy industry is to establish a Nationwide Feed In Tariff (FIT).

 

What is a FIT?

A FIT is a policy mechanism designed to accelerate investment in renewable energy technologies. Producers of renewable energy are paid a set rate for the electricity they produce, usually differentiated according to the technology used (wind, solar, biomass etc.) and the size of the installation. It achieves this by offering long-term contracts to renewable energy producers, typically based on the generation cost of each of the different technologies.

 

Why we need to implement a FIT and what are the Benefits of a FIT program?

The benefits are numerous; the most significant benefits are outlined below:

  • The FIT concept is totally proven having worked far above expectations in Germany for the past 10 years.

Example: Germany set a 2010 target of 12.5% share of renewable energy in electric generation in 2000. They surpassed that goal in late 2007 with 15.1 %.That is 20% better and two years ahead of schedule. Keep in mind that Germany gets half the sun the U.S. gets on average.

  • FIT’s pay for themselves in less than a year:

           In 2008 Germany’s additional cost for their national FIT was $3.2 billion euro’s.

The return for the cost of the FIT calculated by the German Federal Ministry for the Environment was as follows:   

  • $7.8 billion euro’s from reduced amounts of fossil and nuclear fuels purchased
  • $9.2 billion euro’s saved from the avoidance of external costs.* (see note at end)

A total of $17 billion in savings for $3.2 billion in additional costs is clearly a superior return - what we would call in the U.S. – a “no brainer”.

  • It does NOT depend on any tax payer contributions (therefore it is NOT a subsidy) and no new public debt is needed to fund the FIT program - ideal in the current recession environment. As a result it is not as subject to the uncertainty and unpredictability of the political environment.
  • The FIT has clearly proven itself superior to any other programs currently in use around the world, such as subsidies with public money, tendering models or quota models. In fact, since the German’s have launched their FIT program approximately 35 to 40 counties have followed suite and implemented their own.
  • FIT’s encourage decreases in production costs, cost per watt installed, creates jobs, expands manufacturing and increased private sector R&D.
  • FIT’s eliminate uncertainty thereby encouraging private investment resulting in more taxable income from new jobs and from the companies in the industry. Remember: where widespread uncertainty exists major investment does not. This is a basic financial concept that we have somehow, in the US failed to understand and address effectively.
  • It is simple, simple, simple. FIT’s dramatically reduce government bureaucracy, eliminates red tape and move the process along at a much faster and far cheaper rate.

Example: I am very familiar with a typical power purchase agreement in the U.S. having personally worked on numerous megawatt scale and larger projects. They are incredibly complex and take an army of lawyers and engineers at considerable time and cost to the developers/owners of projects.

In the U.S. the typical agreement between a producer and a utility is a minimum of 85 to 100 pages long, in Germany the comparable contract is only 2 to 4 pages.  Keep in mind, the more complex system is NOT working very well in the US and the simple, transparent system is proven and has been successful for over 10 years in Germany.  Obviously this tells you everything you need to know about good old bureaucracy.

In fact, it could not be any more straight forward or transparent. For example, if you have a home Solar PV system in Germany - the utility pays you for what you produce at a fixed rate over a long period of time and you pay the utility at retail rates for what you get from them. Some months you may send them a check and some months they may send you a check. Also keep in mind that majority of the electricity the homeowner is selling the utility is during peak times (11AM to 2 PM) and is therefore worth far more than off peak electricity the utility is selling you.

  • FIT’s, by accelerating the development of the renewable energy industry, enhance national security by lessening the U.S. dependence on foreign oil and helping to decrease the huge cash drain ($800,000,000 per day in 2010) from buying foreign oil.

 

No real negatives to FIT’s - they are totally proven and working worldwide

There really are no serious negatives to FIT’s. The FIT is clearly the most successful and cost effective PROVEN solution in the world today.

The only prerequisite is that the FIT must be carefully designed in order to work effectively. However, there is a very successful model, working for more than 10 years in Germany to learn from and more than 35 additional FIT’s around the world that have started after the success of the German model. Some of these countries have designed their FIT’s successfully and some have not. However the US can learn much from success as well as from failure. The most recent, closest and successful of these FIT programs is in the province of Ontario, Canada.

FIT’s are not theories. They have been demonstrated and proven. They do not need further research, development or testing. They are NOT the next Solyndra. They are currently operating programs that have been developed and honed in highly industrialized countries, and they have been in successful operation for over 10 years.

 

Opposition to FIT’s – Opposition is talk, FIT’s are Fact

  • The number one opponent to FIT’s (no surprise here) is the local electric utility. These utilities argue that FIT’s work contrary to the market, but as we all know most utilities are not driven by the “market” they are monopolies – monopolies do not respond to market forces. As history has shown the LAST thing a monopoly wants is competition in the market. No exception here. But if one looks at FIT results, especially in another developed country like Germany - the numbers speak for themselves. FIT’s are far more market oriented than monopolies.
  • Lack of political courage to try something new or to allow something that powerful contributors (utilities, fossil fuel companies) obviously do not want infringing on their businesses and helping to kick-start an industry that will complete with them.

In other words – there is no economically valid opposition if your primary consideration is the welfare of your citizens, doing what is best for your country long term and the health of the planet upon which we live.

 

Why is it working in Germany and not in the US?

The primary reason FIT’s are working in Germany and not in the US is the respective mindsets in each of the countries.

Let me give you some examples:

Germany:

Here are two quotes from Willi Voigt former minister of the German state of Schlexwig-Holsteim, one of the early adopters of FIT’s.

“We decided we will reduce the CO2 until 2020, 40 percent, (and by) 2050 by 80% and then we debated the instruments that could make this possible and decided on Feed in Tariffs.”

“I hear arguments (spoken in 2009) we discussed in Germany 10 or 15 years ago. It’s the same debate. In Germany, we made a decision; we made a law….the renewable Energy Resources Act (FIT’s). It worked. You can see the results.”

United States:

  • The German’s made a decision that would benefit all their citizens and then followed through with it. The U.S. can’t make a decision – every U.S. President since Richard Nixon has recognized the unsustainable path we are on and has vowed to move toward less dependence on oil – since those first “vows” our dependency has more than doubled. Perhaps our “leaders” are listening more to the sound of special interest money talking than to the voice and long term welfare of the American people?
  • The German’s have a plan – FIT’s that are simple, effective and totally transparent. The US has no plan at all. I think that the first step in solving a problem is to recognize that there is a problem. Opponents of renewables, the fossil fuel industries and their congressional lackey’s,  have done a great media job of keeping the awareness of the energy situation and a critical component of its solution- FIT’s -  from widespread dissemination among the American people.  I believe that the majority of the citizens in the U.S. are not aware of our energy problem and how truly serious it is.
  • Americans, it seems to me, have always been reactive (at least in the energy area) and the current situation calls for us to be proactive and not be complacent. We seem to be unable to make that transition.

Complacency is always a barrier to change. Just as the Captain and crew of the Titanic became complacent when the ship was deemed “unsinkable” we must not become complacent and not do what is proven and obvious – Feed in Tariffs.

 

Interesting “Coincidence” in China

In closing, I think it is interesting to note that in 2006 China avoided implementing a FIT because “FIT’s trigger such rapid market growth”.  I would certainly view this as a compliment to the effectiveness of a well-designed FIT.  Perhaps the Chinese realized that their solar manufacturing base was not in place to address this potentially explosive market?

In 2011 the Chinese implemented a FIT program, their domestic market is now booming and coincidently, Chinese solar manufacturing has scaled up to the point where they can address this huge new market without the help of any imports.

 

Notes: External Costs

External Costs Avoided – these are costs that the German government calculates to take account of the avoided costs of using renewables verses fossil fuels such as: damage resulting from climate change, health related costs related to air pollution and toxic wastes, costs of cleanup of rivers and other bodies of water as a result of pollution etc.

In the US, we totally ignore these external costs, make believe that they do not exist and do not include them in any analysis of a project or technology. Ignoring these external costs will be a HUGE long term negative for the taxpayer and will, as usual, result in a significant burden for the US taxpayer who will eventually get “stuck holding the bag” and paying many times over for the problem – long after it should have been properly accounted for and dealt with.


 

Mr. Lynch has worked, for 34 years as a Wall Street security analyst, an independent security analyst and private investor in small emerging technology companies. He has been actively involved in following developments in the renewable energy sector since 1977 and is regarded as an expert in this field. He was the contributing editor for 17 years to the Photovoltaic Insider Report, an early publication in PV that was directed at industrial subscribers, such as major energy companies, utilities and governments around the world. He is currently a private investor and has from time to time been a financial/technology consultant to a number of companies.

He can be reached via e-mail at: SOLARJPL@aol.com. Please visit his website for the promotion of solar energy – www.sunseries.net.


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