1. Overview
  2. Buyback Rate Approaches
  3. ART Milestones in Wisconsin
  4. Seminal Documents
  5. Links to ARTs Related Websites

Overview of Advanced Renewable Tariffs (ARTs) for renewable electricity

What is an ART?  

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.

Now available in more than a dozen nations in Europe as well as the Province of Ontario in Canada, ARTs have shown to be singularly effective in stimulating considerable growth in small-scale production of distributed renewable electricity.

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.

The Problem for Small Renewable Electricity Producers

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.

Definitions

Net Energy Billing (Net Metering)
  • An arrangement where DG facilities can offset their associated load consumption and are compensated for any extra energy delivered to the electric provider at the rate as specified by their tariff. In Wisconsin only DG facilities using renewable resources with a capacity of 20 kW or less are eligible for net energy billing.
  • If the customer generates more electricity than they use, the excess energy is valued at the customer’s retail rate and credited to their account or the customer gets a check from the utility.
  • Generally Limited to 20 kW in Wisconsin except under special Tariffs.
Standard Buyback Rates
  • Prices that that a utility pays for electric energy from customer-owned
    generators greater than 20 kW.
  • The Public Utility Regulatory Policy Act of 1978 (PURPA) required state commissions to establish buyback rates on each utility’s “avoided cost.”
  • Also known as parallel generation tariffs.
Advanced Renewable Tariffs
  • An advanced renewable tariff is a flat rate, which is higher than the utility’s standard buyback rate, that a utility pays for renewable electricity.
  • The rates typically vary based on the technology used to produce the renewable electricity, with different tariffs applying to wind, solar, etc.
  • Also known as:
    • Feed-in Tariffs (FITs),
    • Renewable Energy Buyback Rates,
    • Renewable Energy Producer Payments and
    • Parallel Generation Rates for Renewables

Rationale and Structure of Buyback Rate Approaches

What are Renewable Electricity Generators Typically Paid Without ARTs? 

  • In conformity with PURPA, electricity generators are paid the cost of “conventional” generation:  standard buyback rates.
  • This is the wholesale rate which is the avoided cost of new generation, with the embedded cost of legacy generators, most of which have been fully amortized.
  • The avoided cost calculation is not provided for purposes of transparency.

Electric Rate Barriers to Distributed Generation

  • Small distributed generators find it difficult to sell power to an electric provider through a competitive solicitation process
  •  Small projects may not be eligible to participate in a competitive proposal solicitation because electric providers will not review bids from small projects when they need to acquire a large amount of capacity.
  • Utility planning for energy and capacity resources is accomplished separately from distribution system planning, and neither generally considers distributed generation.
  • Wisconsin’s RPS law does not encourage or accommodate small, renewable distributed generation.
  • No market-based pricing mechanism is available for the value added by renewable energy.
 

Why Do We Need ARTs?


  • Provides an economically feasible price for a customer-generator
  •  Provides lenders confidence in generation revenue
  •  Encourages investment in renewable generation
  •  Provides for access to interconnection
  •  Effective at stimulating job creation
  •  Diversifies energy supply
  •  Stimulates local investment grid.

Market-Based Rates


  • Distributed generation rates are indexed to market prices (e.g., MISO).
  •  The usefulness of market-based rates in moving the distributed generation market rests in the renewable energy credit premium  added to the indexed rate.
  •  Given the current state of the REC (Renewable Energy Credits) and carbon credit markets, there was no agreement in what the renewable energy credit premium would be worth.
  •  A market-based tariff was considered to be too uncertain and risky for financial lenders.
  •  Indexing was considered to be too complicated and costly for the utilities billing departments to administer.

advanced credit premium illustration

DG Tariff = LMP Day Ahead Hourly Prices +
;  Distribution Benefits Adder +
;;;;;;    Renewable Energy Credit Premium

 

 

Market Based Rates Graph

Chart Showing Indexing To Market Prices

Market-Based Rates Do Not Provide Sufficient Incentives to Build Projects - Even With Other Available Grants

Example: 

600 kW Anaerobic Digester Facility with the following characteristics:

; 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

  Funding Components

   
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

Production Cost-Based ARTs - Typical Characteristics

  • Rates are based on generator’s cost of production, specific to the type of renewable technology.
  •  Rates are specific to generator size, not to exceed a specified size.
  •  Program caps are set (e.g. 1% or 2% of all electric sales).
  •  Tariff contract length of 15 or 20 years.
  •  Inflation adjustments are periodically made.
  •  Requires separate metering.
  •  Program periodically reviewed by the PSCW to see if rates can be adjusted downward ( known as degression ).

Guiding Principles for Production Cost-Based ARTs

  •  The tariff design should focus on removing barriers to smaller renewable distributed generators.
  •  The tariff should balance Wisconsin’s renewable generation targets (RPS) and the value of renewable electricity to the ratepayer.
  •  All energy procured by utilities under this tariff shall be fully eligible to use to comply with the Wisconsin RPS (or to supply renewable energy to a utility green pricing program).
  •  The price elements of the tariff should be kept simple.
  •  The tariff design should encourage new generation capacity.

Production Based Rates Chart

Chart Showing Production-Cost Based Rates

ART Milestones in Wisconsin

Public Service Commission of Wisconsin’s Investigation Docket on ARTs  

 

Public Service Commission of Wisconsin Staff Proposal for ARTs in a Dedicated Docket

Possible “Adequate Incentive” ART Rates for a 10-Year Contract (cents/kWh) 
PSC Chart of "adequate ARTs"

Source:  Briefing Memo – Statement of the Proceeding; “Investigation on the Commission’s Own Motion Regarding Advanced Renewable Tariff Development”; PSCW Staff, May 20, 2009  Docket No. 05-EI-148


PSCW Docket 5-EI-148 Documents 

 pointing finger 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.

Proposed Wisconsin Clean Energy Jobs Act of 2009 - AB 649 / SB 450 Renewable Tariff Provisions

  • The Act directs the PSCW to order the following:
  • Each investor-owned and municipal electric utility shall offer to purchase renewable energy generated at facilities within the utility’s service territory
  • Renewable facility generation is from photovoltaic energy, wind power, biogas and others determined by PSCW
  • Existing “voluntary” Feed-In Tariffs may already satisfy some or all requirements
  • Small electric utilities may be exempt by PSCW
  • PPA may be used by mutual agreement of utility and generator instead of using a Feed-In Tariffs
  • PSCW determines the amount of renewable generation that a utility purchases


  • Terms and Conditions of Feed-In Tariff Purchases:
  • The price paid must consider all of the following:
    ; - The cost of generation for the type of facility
    ; - A reasonable rate of return for the type of facility
    ; - State & federal incentives available for the type of facility 
  • Effective period for payments (e.g. 15 years)
  • A maximum limit on generating capacity for the type of facility
  • The PSCW can adjust terms based on costs for a type of facility
  • Different prices for different sizes of the same type of facility
  • Utility will receive the renewable resource credits associated with generation
  • The PSCW will periodically review its tariffs orders


    CEJA Documents on RENEW's Website
    ART Rate Impact Study and Appendix Document

 pointing finger 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.

 

Where Does the ART Proposal Stand Today in Wisconsin? 


  • No utility commitment to mandatory ARTs
  • It all comes down to cost - the tariff rates offered and convincing upper utility management on the strategy
  •  There seems to be the most support for continuing a voluntary biogas ARTs
  • has high capacity factors
  • looks more like conventional generation
  • utilities want to support the agricultural sector


  • Utilities stated that they did not want distributed wind because it is more economical to support wind farms
  •  Many utilities will be proposing substantial solar electric buyback rates that will be part of their “green” power programs
  • total generation impacts are small compared to biogas and wind
  • solar electric systems can be purchased by more customers than biogas systems or wind systems Provides an economically feasible price for a customer-generator

SEMINAL DOCUMENTS ABOUT ARTs

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.” 


State Clean Energy Policies Analysis (SCEPA) Project: An Analysis of Renewable Energy Feed-in Tariffs in the United States
NREL [Couture and Cory 2009]

“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 Interactions
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 procurement requirement.

 
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.

LINKS TO ARTs RELATED WEBSITES

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.