The Gulf oil spill catastrophe is an ongoing tragedy. And while the well seems to be capped now, we will surely see the harm from the spilled oil unfold for many months and years to come. From all tragedy springs opportunity, however, and one positive outcome flowing from BP's unfortunate accident is a renewed focus on energy and climate change, at least among some of the saner segments of the American populace.
The federal climate change bill appears to be dead this session, the victim of partisan politics in defiance of good sense. Other efforts are more promising, including a growing national focus on feed-in tariffs as a key policy tool for promoting renewable energy. A feed-in tariff is a guaranteed price paid for renewable energy projects that meet certain criteria. Contrary to what many believe, a feed-in tariff doesn't have to be an "above-market" price. The key features of feed-in tariffs are what I just mentioned: a guaranteed price for those projects that meet defined criteria.
California, often the leader on energy policy, is not in fact in the lead on feed-in tariff policy. Rather, municipalities like Gainesville, Florida and Sacramento, and states such as Vermont, Washington state and Oregon, are leading the charge on feed-in tariffs. Further to our north, the province of Ontario has the most robust feed-in tariff program in North America, similar to the European model that has proven so successful in Germany, Italy, Spain, Czech Republic and many other countries.
California is, however, leading in one key area related to feed-in tariffs. The California Public Utilities Commission recently filed a declaratory order request with the Federal Energy Regulatory Commission (FERC). This kind of action asks FERC to decide on a legal dispute before it makes it to the courts, hopefully heading off legal action. The CPUC asked FERC to decide if a limited new feed-in tariff, applicable only to cogeneration facilities under 20 megawatts, was preempted by federal law.
FERC ruled favorably in finding that state feed-in tariffs are not preempted if they set prices at "avoided cost." The relevant federal law here is the Public Utilities Regulatory Policy Act, passed in 1978 and, ironically, responsible for the first-in-the-world and highly successful feed-in tariff policy back in the 1980s and 1990s. PURPA's feed-in tariff required that each state determine the "avoided cost" of power as the price paid to renewable energy developers. The avoided cost determination requires that each state figure out what utilities would otherwise pay for comparable power. This is not an easy exercise and it doesn't, contrary to common belief, simply mean the cost of power from a natural gas plant or a coal plant.
Rather, federal law requires that states consider the benefits of avoiding fossil fuel consumption and the benefits of reducing line losses through distributed generation.
FERC also made it clear in their recent decision that it would be deferential toward states setting avoided costs.
Renewable energy costs have dropped dramatically in recent years, with wind and solar leading the way. Accordingly, the door is now wide open for states to set effective feed-in tariff prices within the avoided cost framework of PURPA, with a high degree of deference to be provided by FERC.
Now, creating effective feed-in tariffs won't be painless in practice, because utilities and other entities will very likely challenge state avoided cost rulings. FERC will probably reject these claims if the avoided cost figures are reasonable and fair, so this shouldn't be considered a major impediment to states becoming proactive on feed-in tariffs.
I submitted detailed legal comments to FERC for my client, the FIT Coalition, a California advocacy group focused on feed-in tariffs and "wholesale distributed generation." We are now also working to pass a robust feed-in tariff for California, the Renewable Energy and Economic Stimulus Act, which I co-authored, while at the same time pushing the CPUC to enact under its own authority a similarly robust feed-in tariff.
A major boost for our efforts recently came from UC Berkeley's analysis of our REESA bill. Professors Dan Kammen and Max Wei found that REESA could achieve the state's 2020 renewable energy goals more cost-effectively than under the traditional model, creating more jobs in the process.
The bottom line is that states have significant leeway to be aggressive in seeking fossil fuel reduction and increased energy independence by developing renewable energy and cogeneration facilities with robust and economically advantageous feed-in tariffs. Many studies have shown that these policies can save ratepayers and taxpayers a lot of money.
The path seems clear: let's get going on a serious feed-in tariff for California and other states!
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Tam Hunt, J.D., is President of Community Renewable Solutions LLC, a company that develops medium-scale wind, solar and biomass projects. He is also a Lecturer in climate change law and policy at the Bren School of Environmental Science & Management at UC Santa Barbara.