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Feed-in Tariffs for Renewable Electricity
Summary of Renewable Electric Buy-Back Rates
for WI Investor Owned Utilities
- Updated
Jan. 3, 2012
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
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.
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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.
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Definitions
Net Energy Billing (Net Metering)
Standard Buy-Back Rates
Advanced
Renewable Tariffs (ARTs) - also known as ...
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
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