1

Legal Framework for Solar Energy

PREPARED BY LEROY PADDOCK AND DAVID GRINLINTON

WITH THE ASSISTANCE OF STACY BURTON, ALISON BRUENJES,

GEOFFREY HEAVEN, AND SARAH ZUBAIR

Prepared by the George Washington University Law School Environmental Law Program

under a research grant from The George Washington University Solar Institute

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Table of Contents

I. INTRODUCTION ................................................................................................................................. 3

II. KEY ISSUES .......................................................................................................................................10

A. FEED-IN TARIFFS ..............................................................................................................................10 i. Background ...................................................................................................................................10 ii. Structure .......................................................................................................................................11 iii. Use in other countries .................................................................................................................16

a. Germany .................................................................................................................................................. 16 b. Spain ....................................................................................................................................................... 22 c. Australia .................................................................................................................................................. 29 d. Ontario, Canada ...................................................................................................................................... 32

v. Feed-in Tariff Conclusions ...........................................................................................................50 B. RENEWABLE PORTFOLIO STANDARDS ...............................................................................................52

i. Structure ........................................................................................................................................52 ii. Use Outside of the US ..................................................................................................................54

a. Japan ....................................................................................................................................................... 54 iii. Use in the United States ................................................................................................................56 iv. Pending Federal Legislation .......................................................................................................56

v. Issues ...................................................................................................................................................... 57 C. Third-Party Providers ............................................................................................................................. 60

E. LAND USE ............................................................................................................................................67 i. Utility scale facilities ....................................................................................................................68 ii. Smaller facilities ............................................................................................................................72 iii. Solar Access Laws ........................................................................................................................75

F. GOVERNMENT PROCUREMENT ..........................................................................................................75

III. FINDINGS .........................................................................................................................................78

APPENDIX A: Five Country Report: Legal and Policy Framework for Solar Energy in Germany, Spain, Japan,

China and Australia ........................................................................................................................................... 1

APPENDIX B: DSIRE Summary: Stateincentives for Solar Energy ....................................................................79

APPENDIX C: Federal Legislative Framework: Rapid Deployment of Solar Technologies ................................133

APPENDIX D: State Conisderation of Third-Party Providers as a Public Utility .............................................153

APPENDIX E: Resources ............................................................................................................................158

APPENDIX F: Graphics .............................................................................................................................159

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Legal Framework for Solar Energy

Report

12.24.09

I. Summary

The legal framework has a major impact on the viability of solar enegy generation

facilities of all sizes. Among the critical legal questions related to solar energy

deployment are the value feed-in tariffs and the ability of states in the United States to

pass such tariffs, the role that renewable energy portfolios play in supporting solar energy

capacity, whether third-party solar energy providers should be regulated as public

utilities, the nature of the steps that can be taken to expedite transmission line siting, the

affect land use and zoning regulations may have on solar facility deployment and the

value of government procurement provisions in increasing solar energy production.

Our study resulted in the following findings:

a) The experience in Germany and in several other countries demonstrates that a feed-in

tariff with a solar set-aside will result in the addition of more solar generation

capacity if the rates are based on the cost of production and a reasonable return on

investment.

b) The division of authority in setting electric rates in the United States with the Federal

government having authority to set retail rates and the state governments having

authority to set retail rates significantly complicates the adoption of feed-in tariffs in

the United States.

c) While states have some limited paths to adopt feed-in tariffs under existing Federal

law, widespread use of this approach to encourage renewable energy generation likely

relies on clarification of FERC precedents and new administrative decisions or

rulemakings by FERC or on the passage of new Federal legislation.

4

d) The design of feed-in tariffs is important. Designs that encourage smaller scale

(1MW to 20MW) commercial facilities may allow the facilities to be located in areas

where they can connect to the existing grid and therefore not be slowed by the need to

site new transmission lines.

e) The German and especially the Spanish feed-in tariffs have encouraged the

construction of large solar facilities by not placing size limits on individual facilities.

f) Tariffs that set different rates for types of renewable technology are needed to assure

investment in solar PV.

g) Feed-in tariffs must be carefully constructed to assure a proper balance between

promoting emerging technology and increasing user costs to unacceptable levels.

h) States and local governments in the United States are beginning to enact feed-in

tariffs despite uncertainty about their authority to do so.

i) State feed-in tariffs could encourage significant growth in solar generation capacity

but state-by-state tariffs are likely to result in higher overall consumer costs since at

least some of the capacity will be in states with restricted sunlight and therefore less

efficient production.

j) A national feed-in tariff would allow increased concentration of solar generating

capacity in higher efficiency locations (assuming sufficient transmission capacity can

be built) but this type of legislation may not be supported by states since it could be

considered as a nationalization of a traditional state function—setting retail energy

rates.

5

k) The basic concept underlying targeted solar feed-in tariffs is to ―prime the pump‖ for

wider adoption of solar facilities. Additional research could help build a better

understanding of whether this concept is working as expected.

l) Renewable Portfolio Standards tend to support lower cost forms of renewables unless

the portfolio standard is technology specific or the renewable standard is high enough

that it cannot easily be met without including solar PV in the mix of renewables.

RPSs that exceed 30 percent are seen by some in the solar industry as being high

enough to promote wider use of solar PV.

m) The design of RPSs is important. Some RPSs only require contracts to be signed

rather than the source to be in operation and demonstrate its performance before

obtaining credit for the project. This can result in speculation and unrealistically low

prices in RPS bids that later fail because they are not economical.

n) RPSs have now been in place for a few years but it is not yet clear whether the

standards will be effectively enforced. If the standards are not enforced they will not

drive increased deployment of renewable energy facilities.

o) Several states have considered the issue of whether third-party power providers

should be treated as public utilities. Because of the regulatory costs associated with

public utility status, third-party providers may find that it is uneconomical to operate

if they are subject to regulation as public utilities. State decisions to date have found

third-party providers are not public utilities under applicable state law. However, the

issue continues to surface.

6

p) Transmission will be a significant limiting factor for utility-scale solar PV over the

next few years. Distributed siting of smaller utility scale PV facilities may allow

interconnection without the need for new transmission capacity.

q) Siting of new transmission capacity can be expedited by:

i. using early and inclusive stakeholder engagement processes,

ii. ensuring that there are local benefits associated with the construction of new

transmission lines,

iii. conducting early review of potential corridors for impacts on endangered and

threatened species and development of strategic mitigation plans that could be

used to address potential impacts on endangered and threatened species along

transmission corridors,

iv. collaborating with public land managers to help identify the most acceptable

corridors across public lands,

v. encouraging the use of environmental review procedures such as

programmatic environmental impact statements and categorical exclusions for

low impact facilities that can streamline the EIS process in cases where the

environmental impact likely is not significant.1

r) Because utility-scale PV facilities will need a significant amount of land, clarifying

zoning restrictions related to the use of solar PV is important. The Ontario

agriculture restrictions on the siting of solar PV on the most productive agricultural

land might be a good model. However, many locations in the United States do not

have detailed agricultural zoning. A model zoning ordinance that addresses solar PV

1 Irma Russell, Streamlining NEPA to Combat Global Climate Change: Heresy or Necessity?, 39 Envtl. L.

No. 4, available at http://www.elawreview.org/elaw/394/streamlining_nepa_to_combat_gl.html.

http://www.elawreview.org/elaw/394/streamlining_nepa_to_combat_gl.html

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use on agricultural land, in commercial and industrial zoned areas, and on

brownfields sites could encourage local governments to adopt new laws that would

create more certainty for facility operators.

s) Small scale solar PV may be restricted in many states by local zoning requirements

and by restrictive covenants. Model state legislation that precludes local governments

from overly restricting household and small commercial PV and voids restrictive

covenants that prohibit household scale PV units could facilitate deployment of small

scale solar PV.

t) Government actions under the new Sustainability Executive Order may help stimulate

the use of solar PV. Implementation of the Executive Order might create new

incentives for government agencies to use solar PV as a way of meet their energy and

climate targets.

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II. Introduction

Because solar photovoltaic (PV) technology is not yet price competitive in the

marketplace with conventional sources of electric power generation, the legal framework

associated with solar energy production is particularly important to the deployment of

solar power facilities. Laws can provide direct subsidies for research and development of

solar technology to help lower the cost of the technology. They can create tax incentives

that assist in closing the gap between conventional and solar generation including sales

tax exclusions or rebates, property tax reductions, accelerated depreciation, investment

tax credits, and others. Legislation can recognize the value of avoiding externalities

through mechanisms such as renewable energy certificates (RECs) and carbon offsets, as

well as through emissions trading mechanisms (cap and trade) that set limits on

greenhouse gas emissions associated with conventional power production. Laws can

require electric utilities to derive a certain percentage of their energy supply from

renewable energy thereby supporting solar power generation (although lower cost

renewable energy sources may out-compete solar photovoltaic under renewable energy

portfolio standards that do not include specific solar ―carve outs‖). The legal framework

also can provide solar energy with preferential treatment in government procurement

systems. Finally, legislation can permit utility commissions to establish preferential rates

for various types of renewable generation, allowing solar energy facilities to directly

compete in the marketplace with other technologies.

The mix of legal tools used to close the gap between conventional power generation and

solar PV is very important. Some tools are better suited to support small-scale

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development while others favor larger, utility-scale investments. Some tools may favor a

national strategy related to issues such as energy security and climate mitigation, while

others better accommodate state or regional energy goals that favor energy sources

available in the area. The mix of legal tools has a direct impact on who bears the extra

cost associated with solar energy generation. Feed-in tariffs place the cost with

ratepayers creating additional incentives for efficiency, while tax incentives spread the

cost more widely but do not create price signals that encourage efficiency. Further, tools

can be combined to reach a price point that supports construction of new solar facilities.

For example, third party solar providers succeed when the combination of electricity

prices, tax credits that can be claimed by the provider and the value of renewable energy

credits available to the provider allow the provider to make a profit.

Environmental review, species protection and permitting requirement, among others,

have a significant impact on how quickly new facilities can be sited and the operating

conditions that may be imposed on new transmission lines and new solar generation

facilities. Laws including zoning ordinances may limit where solar facilities can be sited

and restrictive covenants may ban the use of solar technologies in certain setting.

However, laws also can preclude the enactment of local ordinances and enforcement of

restrictive covenants that hinder the wider use of solar generation technologies.

This paper explores much of the legal framework described above. It does not discuss

the tax incentives because another research paper funded by the GW Solar Institute will

focus on these issues.

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III. Key Issues

A. Feed-In Tariffs

i. Background

Feed-in tariffs (FITs)2 are increasingly recognized as a successful public policy strategy

for increasing the penetration of solar PV into the energy marketplace.3 The specific

design of FITs has important implications in providing the certainty developers and

financers of solar PV projects need, to determining the mix of PV technologies that are

likely to be deployed, and in encouraging PV development in various locations in the

country. For example, FITs that limit the subsidy to relatively small PV installations may

promote more widely distributed facilities that may be able to be connected to the grid

without the expense of developing building new transmission lines and other

infrastructure. FITs that provide eligibility to larger facilities may favor central station

generation since the costs of energy from these larger facilities historically has been

lower on a marginal basis. A national FIT is likely to encourage PV development in

areas with more consistent sunlight if a uniform price is established, whereas state FITs

are likely to encourage more diffuse siting of PV facilities even if the facilities in some of

these states are not as efficient due to differences in solar intensity.

2 Feed-in tariffs can be calculated in a variety of ways. This section of the paper focuses on payments

based on levelized renewable energy project costs where the payment is based on the cost of renewable

energy generation plus a target rate of return. Some tariffs that are referred to as feed-in tariffs are based on

calculation of the utilities‘ avoided costs while others are fixed price incentives. See Toby Couture and

Karlynn Cory, State Clean Energy Policies Analysis (SCEPA) Project: An Analysis of Renewable Energy

Feed-In Tariffs in the United States 2 (National Renewable Energy Laboratory May 2009). 3 See International Energy Agency, Global Renewable Energies Database, Policies and Measures, available

at http://www.iea.org/textbase/pm/?mode=re&action=result.

http://www.iea.org/textbase/pm/?mode=re&action=result

11

Countries throughout the world have introduced FITs over the last decade, with

legislative activity accelerating in the last few years with 44 countries now having some

form of feed-in tariff.4 Use of FITs in the United States has lagged behind Europe and

countries in other parts of the world. A few cities—Gainesville, Florida and Sacramento,

California—have pioneered FITs in the United States. States have begun enacting FITs;

however, Federal Energy Regulatory Agency (FERC) decisions involving FITs raise the

potential that the Federal Power Act may preempt state feed-in tariffs.5 A provision of

the Waxman-Markey climate legislation attempts to clarify state authority to enact FITs,6

and stand-alone legislation proposed by Representative Inslee would establish a national

FIT.7

ii. Structure

A feed-in tariff is a public policy approach to rate setting that is designed to support

wider use of energy supplied by technologies that are not otherwise market competitive

but have other benefits such as reduced environmental impacts. FIT legislation allows

(or requires) public utility commissions or electric utilities to set rates at a level high

enough (in cents per kilowatt hour) for a long enough period of time (typically 15 to 25

years) to attract alternative energy suppliers into the market.

4 See Miguel Mendonca & David Jacobs, Feed-in Tariffs Go Global: Policy in Practice, Renewable Energy

World Magazine (Sept. 17, 2009), available at

http://www.renewableenergyworld.com/rea//news/article/2009/09/feed-in-tariffs-go-global-policy-in-

practice. 5 See generally California Attorney General‘s Response to ALJ‘s Request for Briefs Regarding Jurisdiction

to Set Prices for a Feed-In Tariff, June 25, 2009, available at

http://ag.ca.gov/globalwarming/pdf/feed_in_tariffs.pdf. 6 American Clean Energy and Security Act of 2009, H.R. 2454, 111th Cong. (2009).

7 See Renewable Energy Jobs and Security Act, H.R. 6401, 110th Cong. §210B (2008).

http://www.renewableenergyworld.com/rea/news/article/2009/09/feed-in-tariffs-go-global-policy-in-practicehttp://www.renewableenergyworld.com/rea/news/article/2009/09/feed-in-tariffs-go-global-policy-in-practicehttp://ag.ca.gov/globalwarming/pdf/feed_in_tariffs.pdf

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For example, solar PV supplied energy is currently from two to five times more

expensive than energy generated from conventional sources in most locations in the

United States, although the cost of solar PV is changing rather rapidly8 and is close to

achieving what is termed ―grid parity‖ (direct price competivtiveness with traditional

sources of generations) in Hawaii.9 As a result, all other factors being equal, solar PV

energy is presently not competitive in the market place in most regions of the United

States. A well-designed FIT identifies the cost differential between desired alternative

generation technologies and the current market rate for sources of electric power

generation and establishes a preferential rate (or tariff) that is sufficiently high to bridge

the gap between conventional and favored technology to attract investment in alternative

generation sources.

The additional cost of the alternative generation technology typically is passed on to

electricity ratepayers, although in Spain the additional cost is funded directly by the

8 Survey of Solar Electricity Prices, Solarbuzz, LLC (2009), available at

http://www.solarbuzz.com/SolarPrices.htm.

9 A recent report in CleanTechnica.com noted:

The average price of a 100kW system in San Diego, California costs $6.50/Watt DC. A

100kW system generates approximately 154,000 kWh per year and has an estimated

payback time of 7 years with government incentives and 13 years without incentives;

whereas in Boulder, Colorado the payback time with incentives is 7 years and 18 years

without incentives. The numbers vary significantly in Portland, Oregon. The payback is 4

years and 24 years, respectively. Honolulu, Hawaii shows the best return with 4 years

payback with government incentives and 7 years payback without incentives.

The above data shows that Hawaii is closest to grid parity given the combination of high

electricity prices and excellent solar insolation. At the moment, none of these markets are

offering an acceptable payback time to solar electric system owners without the help

from government incentives.

Angiolo Laviziano, Beyond Subsidized Solar Power: The Path to Grid Parity, CleanTechnica, May 12,

2009, http://cleantechnica.com/2009/05/12/beyond-subsidized-solar-power-the-path-to-grid-parity/.

http://www.solarbuzz.com/SolarPrices.htmhttp://cleantechnica.com/2009/05/12/beyond-subsidized-solar-power-the-path-to-grid-parity/

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government. The general design objective of FITs is to attract enough investment in the

alternative generation technology to stimulate wider adoption of the technology over time

through economies of scale, increased efficiency of the technology, better understanding

of the advantages of the technology and other lessons learned from actual deployment.

This objective is typically balanced against concerns about subsidizing so much

investment in the technology that consumer prices (or the cost to the government)

significantly increase. As a result, FITs usually have a specific megawatt cap. For

example, the Gainesville, Florida FIT is capped at 4 megawatts through 2015.10

The

tariff, which guarantees a rate of $.32 per kilowatt for 20 years, quickly reached this

ceiling.11

FIT caps can present a challenge for energy developers since a project typically does not

qualify for FIT payments until it is constructed and ready for production. If the FIT cap

has been reached before the new facility comes on line, it may not qualify for FIT rates

making it uncompetitive in the market. FIT design approaches that have a more flexible

cap are generally more attractive to developers. These flexible designs include those that

set a maximum generation limit that, once reached, allows other facilities that come on

line within a set period of time to qualify for the FIT rates. Since solar PV can be

brought on line in many cases in a relatively short period of time, this flexibility

encourages additional development.12

For example, Italy‘s FIT sets a cap at 1,200MW

plus all plants commissioned within 14 months after the national cap has been reached (or

10

GRU FIT Administrative Guideline, Gainsville Regional Utilities (March 1, 2009), available at

http://www.gru.com/Pdf/futurePower/GRU FIT Administrative Guideline 7-22-09.pdf. 11

See GRU FIT Application Information page, available at

http://www.gru.com/OurCommunity/Environment/GreenEnergy/solar.jsp. 12

Interview with Robert Hemphill, President, AES Solar (September 7, 2009).

http://www.gru.com/Pdf/futurePower/GRU%20FIT%20Administrative%20Guideline%207-22-09.pdfhttp://www.gru.com/OurCommunity/Environment/GreenEnergy/solar.jsp

14

24 months for public authorities).13

To qualify for the Italian feed-in tariff, the energy

supplier must apply within 60 days after the facility is commissioned.14

Obviously, the

downside of the ―cap-plus‖ approach is that the total quantity of FIT energy is not limited

and therefore creates the possibility that more capacity will come on line than expected,

raising consumer prices.

Establishing the FIT rate is a critical element to the success of the approach. If the rate is

set too high, it will unnecessarily raise consumer rates since PV suppliers could have

been attracted at a lower tariff. If the rate is set too low, suppliers will not be

forthcoming and the policy will not achieve its objective. As a result, feed-in tariffs are

typically set through a detailed public process and are adjusted periodically. In addition,

tariffs frequently include rates that decline after the first year to reflect expected

technology innovation and lower construction and production costs. The Italian tariff

automatically declines from its 2008 rate by two percent each year in 2009 and 2010, and

the rate will be reassessed after 2010.15

The Spanish feed-in tariff, supported by

government subsidies rather than ratepayers, was set so high that it attracted far more

investment than expected in its first year markedly driving up the cost of the subsidies

created by the tariff to an estimated $26.4 billion.16

As a result, applications were

terminated and the government established a lower rate under a new legal structure.17

13

F. Tilli, A. Berni, A. Grassi and M. Pellegrino, The Feed in Tariff Scheme in the Italian Case: An

Attempt to Remove Barriers for PV Architechural Integration and for Increasing Building Energy

Efficiency 3 (2008), available at http://web.etaflorence.it/uploads/media/IsesTilli08_01.pdf. 14

Id. 15

Id. at 4. 16

See Paul Voosen, Spain's Solar Market Crash Offers a Cautionary Tale About Feed-In Tariffs, New

York Times, August 18, 2009, available at http://www.nytimes.com/gwire/2009/08/18/18greenwire-

spains-solar-market-crash-offers-a-cautionary-88308.html. 17

See infra Appendix A, p. 24.

http://web.etaflorence.it/uploads/media/IsesTilli08_01.pdfhttp://www.nytimes.com/gwire/2009/08/18/18greenwire-spains-solar-market-crash-offers-a-cautionary-88308.htmlhttp://www.nytimes.com/gwire/2009/08/18/18greenwire-spains-solar-market-crash-offers-a-cautionary-88308.html

15

This change resulted in very significant job loss in the solar industry in Spain and

significantly disrupted the solar panel market.18

In a study of FITs, the National Renewable Energy Laboratory (NREL) identified the

advantages of a feed-in tariff:

Well-designed FIT policies have several advantages over other RE

[renewable energy] policies such as upfront rebates, net metering, and

quota-based policies like renewable portfolio standards (RPS). First, a

growing body of evidence from Europe demonstrates that FIT policies

have on average fostered more rapid RE project development than these

other policy mechanisms. Additionally, they have been found to be more

cost-efficient in terms of the average cost-per-kWh paid for RE generation

than policies like RPSs that make use of competitive solicitations. This

suggests that their implementation could help secure the benefits of RE

development at lower cost to society, and to ratepayers.

Initial evidence suggests that there are two primary reasons FIT policies

are more cost-efficient than other policies. First, policies that make use of

competitive solicitations like RPSs involve a higher degree of risk for the

developer, putting upward pressure on the required returns. The reduction

of these investment-level risks under FIT policies can also help reduce

capital costs, ultimately reducing the cost of renewable electricity. Second,

projects vying under the competitive solicitation processes tend to be

financed by larger institutional or corporate investors who provide equity

as opposed to debt financing. Since equity is more expensive than debt,

leading to a higher weighted average cost of capital, further upward

pressure is placed on the levelized costs of energy.

Successful FIT policies are generally designed to allow for an adequate

recovery of project costs plus a reasonable rate of return, thereby

increasing investor security. Furthermore, by offering transparent payment

levels and uniform contract terms at the outset, FIT policies help create a

framework with low administrative and regulatory barriers for promting

RE deployment.19

(Citations omitted)

18

Voosen, supra note 16. 19

Toby Couture and Karlynn Cory, State Clean Energy Policies Analysis (SCEPA) Project: An Analysis of

Renewable Energy Feed-In Tariffs in the United States 3-4 (National Renewable Energy Laboratory 2009),

available at http://www.nrel.gov/docs/fy09osti/45551.pdf.

http://www.nrel.gov/docs/fy09osti/45551.pdf

16

Among the challenges for FITs identified by NREL are that: FIT policies do not address

the barrier posed by high up-front costs of renewable energy (RE) systems, the policies

increase the near term cost of electricity, the policies require significant administrative

work to set a tariff that appropriately balances incentives for additional solar facilities

with the higher electricity costs that will result from the tariff, and FIT policies must be

periodically adjusted to take into account current market conditions.20

Based on the experience to date, several factors appear to be important in thinking about

the design of FITs. Among the key factors that can promote expanded use of solar

energy are FITs that:

are technology specific to ensure that solar PV does not have to compete against other, lower cost renewable sources of generation

provide privileged access to the grid

assure a tariff that covers the cost of generation and provides a reasonable rate of return

distributes the extra cost of the feed-in tariff in electricity prices but does not raise rates dramatically

provide a guaranteed feed-in period

allow some some flexibility if there is a cap to assure that investments in new facilities will qualify for the FIT if they are completed within a

reasonable time after the cap has been reached

use a careful administrative process to set tariffs that provides an adequate but not excessive tariff.

21

iii. Use in other countries22

a. Germany

20

Id. at 5. 21

See presentations of Hans Josef Fell, Feed In Tariff for Renewable Energies and Karin Corfee, Feed In

Tariff Case Studies, Symposium, GW Solar Institute Kickoff (April 24, 2009), available at

http://solar.gwu.edu/Symposium.html. 22

A detailed study of the legal structure associated with solar energy in Germany, Spain, Japan, China and

Australia is appended to this report as Appendix A. Most of the information related to solar development

in countries outside of the United States is derived from that report.

http://solar.gwu.edu/Symposium.html

17

Germany is clearly the world leader in grid-connected solar PV uptake, research and

development. Although it fell to second place behind Spain in terms of new installations

in 2008, it had a total of 5.4 GW of solar PV (over half the world‘s current capacity) at

the end of 2008.23

A major contributor to the success of solar PV development in

Germany has been its FIT law, which the German government initially introduced in

1990 to promote renewable energy generally, and later updated in 2004 to provide

enhanced fiscal encouragement for solar PV development.

Solar PV was brought under the Renewable Energy Sources Act (Erneuerbare-Energien-

Gesetz or ―EEG‖) of 2000 in July 2004.24

The Act provides for compensation rates for

electricity produced by solar PV, with tariffs ranging from 45.7c (Eurocents) for large

capacity open-space solar power plants to 57.4c for plants installed on a building and

with a capacity of less than 30 kWp (kilowatt peak, a measure of the peak output of a

photovoltaic system).25

For plants installed on buildings there was a 5c ―building surface

bonus‖ where the solar arrays were integrated into the building facade.26

To encourage

innovation and cost saving, the compensation levels for newly commissioned

installations are reduced by 5 percent per year beginning in 2005.27

From January 1,

2006 this degression rate was increased to 6.5 percent for open-space installations.28

The

tariff that applied to the installation on start-up is guaranteed for 20 years plus the year of

23

Renewable Energy Policy Network for the 21st Centurty (―Ren 21‖), Renewables Global Status Report –

2009 Update 8-9, 24, Tables R3 & R4 (2009) available at

http://www.ren21.net/globalstatusreport/g2009.asp. 24

Travis Bradford, Solar Revolution: The Economic Transformation of the Global Energy Industry 180

(MIT Press 2006). 25

See infra Appendix A, p. 6. 26

Id. 27

Id. 28

Id.

http://www.ren21.net/globalstatusreport/g2009.asp

18

opening.29

The objective of the system is to ensure a modest long-term return of

profitability in the order of 5 to7% net for solar energy producers.30

The EEG 2000 was recently replaced by the EEG 2009 that came into force on January 1,

2009. The new Act maintains and refines the FIT provisions, and in relation to solar PV

energy simplifies the tariff scheme, while providing higher degression rates.31

The feed-in system allows two-way electricity traffic so that small-scale producers are

able to feed electricity to the grid when they have a surplus, and receive electricity from

the grid when they are in deficit, although there are limitations on this for large solar

energy producers where intermittency of supply might destabilize the grid.32

Grid

operators must allow, as a priority, connection to the grid of new installations generating

electricity from renewable sources.33

The installation operator meets the cost of this

where the connection point offered by the grid operator is the closest and most

convenient to the point of generation.34

If the grid operator assigns a less optimum

connection point, the grid operator pays the cost of connection.35

Grid operators are

obliged to receive any renewable electricity offered, in preference to non-renewable

29

Id. at 6-7. 30

See Erneuerbare-Energien-Gesetz [The Renewable Energy Sources Act], July 2007, at 4-8 [hereinafter

EEG], available http://www.bmu.de:English:publications:publ:40067.php; Electricity Policy in

Germany, 1974-2005, Bulletin of Science Technology Society, Vol 26, 2006, at 110-113; A.

Campoccia, L. Dusonchet, E. Telaretti, & G. Zizzo, Comparative Analysis of Different Supporting

Measures for the Production of Electrical Energy by Solar PV and Wind Systems: Four Representative

European Cases, Solar Energy, Volume 83, Issue 3, March 2009, at 290. 31

See infra Appendix A, p. 6. 32

See infra Appendix A, p. 7. 33

Id. 34

Id. 35

Id.

http://www.bmu.de:English:publications:publ:40067.php/

19

energy.36

Unless it is economically unreasonable, grid operators are also obliged to

―optimize, boost and expand‖ their grid systems if it is necessary to guarantee the

purchase, transmission and distribution of the electricity generated by renewable energy

technology.37

Grid operators then sell the electricity to transmission system operators for

the same price.38

Transmission system operators sell on to utilities that, in turn, deliver to

the consumers.39

Complex provisions provide for some measure of nationwide

equalization of costs for different transmission operators, and for electricity intensive

enterprises, to ensure they are not disadvantaged by the scheme relative to their

competitors.40

The EEG 2009 provides for solar energy tariffs of 31.94c per kWh for free-standing solar

energy installations, although tariffs for these installations are to be phased out from

January 1, 2015.41

For installations mounted on buildings, the tariffs range from 33.0c

per kWh for installations with output over 1MW; 39.58c per kWh for output between

100KW and 1MW; 40.91c per kWh for output between 30-100KW; and 43.01c per kWh

for the first 30KW of output.42

Degression rates for non-building mounted solar

installations are set at 10% in 2010, and 9% per annum from 2011 until the tariff is

terminated for such facilities in 2015.43

For building mounted installations with a

maximum capacity of 100 KW, the degression rate is 8% for 2010, and 9% per annum

from 2011; and for installations over 100KW, it is 10% for 2010, and 9% per annum

36

Id. 37

Id. 38

Id. 39

Id. 40

Id. 41

Id. 42

Id. 43

Id.

20

from 2011.44

For example, a solar energy installation coming on stream in 2012 and

operating at a capacity of 50KW will attract a feed-in tariff of 31.17c (calculated as 40.91

less 8% (2010 degression) = 37.64c, less 9% (2011 degression) = 34.25c, less 9% (2012

degression) = 31.17c).45

The degression is intended to both reflect the increasing

innovation and reduced production costs of solar energy technology, and provide a

positive incentive for aggressively improving such innovations and production processes.

Further encouragement is provided through a bonus of 1% when aggregated capacity of

installations registered with the Federal Network Agency within the previous 12 months

exceeds 1,500 MW (in the year to September 30, 2009); 1,700MW (2010); and 1,900

MW (2011).46

A 1 percent penalty is incurred where new installations fall below

1,000MW (in 2009); 1,100MW (in 2010); and 1,200MW (in 2011) 47

A further innovation is the provision for the establishment of a ―Clearing House‖ within

the federal Ministry for the Environment, Nature Conservation and Nuclear Safety, to

settle disputes and issues that may arise between installation operators, grid system

operators, transmission system operators and utility companies.48

Under s 61, EEG 2009,

the Federal Network Agency is also directed to assist the Ministry with monitoring and

evaluating the operation of the Act, and particularly the actions of the industry players

under the Energy Industry Act 2005 (Energiewirtschaftsgesetz or EnWG).

44

EEG § 20(8) (2009). 45

See infra, Appendix A, p. 7. 46

Id. 47

EEG § 20(2a) (2009). 48

EEG § 57, (2009).

21

Since the 2004 amendment to the EEG 2000 that provided greatly enhanced feed-in

tariffs to solar PV electricity production, PV electricity generation has increased from

557GWh in that year to 4,000GWh in 2008, with installed capacity increasing from

408MWp to 5,311MWp in the same period.49

The PV share of renewable energy used for

electricity production increased by 29% in the 2007/2008 year to 4 billion KWh (or

4.4%) of the 91.4 bn KWh produced by renewable energy.50

In terms of economic impacts, the cost of the feed-in tariff system to consumers with an

average electricity consumption of 1,700kWh, is calculated at only €1.5 a month (about

$US2.00 a month),51

and elsewhere as less than 4% of the average price of domestic

electricity.52

On the other side of the equation, in addition to the unquantifiable

environmental benefits of reducing GHGs, there are some quite specifically quantified

economic benefits.

Employment in the renewable energy sector is put at around 278,000 jobs in 2008, an

increase of 12% on the previous year, and 73% since 2004. The most growth was

experienced in the PV sector.53

49

See infra Appendix A, p. 14. 50

BMU, Development of Renewable Energies in Germany in 2008, Bundesministerium für Umwelt,

Naturschutz und Reaktorsicherheit [Federal Ministry for the Environment, Nature Conservation and

Nuclear Safety] [hereinafter BMU] April 2009, at 4, 6-8, 20-21, available at http://www.erneuerbare-

energien.de/inhalt/43988/3860/. 51

Id. at 11. 52

Renewable Energy Sources Act (EEG) Progress Report 2007, BMU, December 2007, at 9, available at

http://www.bmu.de/english/renewable_energy/downloads/doc/40638.php. 53

Development of Renewable Energies in Germany in 2008, BMU, April 2009, at 13, available at.

http://www.ufop.de/downloads/Entwicklung_ee_2008_englisch.pdf.

http://www.erneuerbare-energien.de/inhalt/43988/3860/http://www.erneuerbare-energien.de/inhalt/43988/3860/http://www.bmu.de/english/renewable_energy/downloads/doc/40638.phphttp://www.ufop.de/downloads/Entwicklung_ee_2008_englisch.pdf

22

Investment turnover (the combination of investments in technologuy deployment and

operating revenue) from renewable energy sources in 2008 was €13.12 billion euro, of

which PV comprised 47.3% (€6.2 billion), and operating turnover was €15.55 billion, of

which PV comprised 23% (€3.5 billion).54

These gave a total turnover of €28.67 billion

euro with photovolteics comprising 34% (or €9.75 billion euro).55

Approximately 60% of

these benefits are directly attributable to the EEG legislation.56

b. Spain

Spain was the top installer of solar PV capacity in 2008 adding 2.6 GW of solar PV

capacity.57

As a result of this accelerated development, Spain ranked in second place in

total solar PV installed capacity worldwide at the end of 2008. This represented a five-

fold increase over 2007, which in turn had a five-fold increase over 2006.58

Spain is also

the world leader in concentrated solar (thermal) power (CSP) technology.

But this rapid expansion has not come without significant concerns about the design of

the Spanish FIT; a design that has led to a boom-bust cycle in solar PV in Spain. FIT

legislation in the 2007 Decree resulted in a 500% increase in solar electricity in both

2007 and in 2008, exceeding by approximately four times the expected solar PV

capacity.59

The government had set a cap for new solar facilities of 400 MWs by 2010

54

Id. at 22. 55

Development of Renewable Energies in Germany in 2008, BMU, April 2009, at 22, available at

http://www.erneuerbare-energien.de/inhalt/43988/3860/. 56

Renewable Energy Sources Act (EEG) Progress Report 2007, BMU, December 2007 at 8-9, available at

http://www.bmu.de/english/renewable_energy/downloads/doc/40638.php. 57

Id. at 8-9, 11, 24 (Tables R3 & R4). 58

See infra Appendix A, p. 30. 59

M. Roberts, Spain Ratifies New 500 MW Solar Subsidy Cap, Reuters, Sept. 26, 2008, available at

http://www.reuters.com/articlePrint?articleId=USTRE48P7JW20080926; G. Baratti, Spanish Solar Subsidy

http://www.erneuerbare-energien.de/inhalt/43988/3860/http://www.bmu.de/english/renewable_energy/downloads/doc/40638.phphttp://www.reuters.com/articlePrint?articleId=USTRE48P7JW20080926

23

but as of September 2007 new capacity had already reached 344 MWs.60

As a

consequence, the government suspended the program under the 2007 Decree causing

severe disruptions in the solar industry in the country and the loss of thousands of jobs.61

To avert another boom-bust cycle, the government in Royal Decree 1578/2008 lowered

tariff rates and set a new cap on eligible projects.62

The Spanish FIT was modeled on Germany, but with some significant differences.63

The

Real Decreto 2818/1998 introduced more detailed measures regarding fiscal,

administrative and corporate structures to promote renewable energy on January 1,

1999.64

The most important aspect of this measure was the introduction of a FIT that

extended advantages to solar PV electricity production. The measure imposed a

requirement for utilities to buy solar electricity at a premium rate of €0.40 per kWh for

systems of less than 5 kW, and at €0.20 per kWh for systems over 5 kW.65

The Real

Decreto 1663/2000 established the technical requirements for connection of PV systems

with a nominal power of less than 100 kVA, and a low voltage connection (less than 1

kV), to the distribution grid.66

This was an important step to facilitate a major increase in

grid-connected solar PV.

Seduces FPL, Scorches Consumers [Update 3], Bloomberg.com, May 8, 2009, available at

http://www.bloomberg.com/apps/news?pid=20601109&sid=aCGsB8hGkDIg. 60

See Ucilia Wang, Spain Kicks Off New Solar Feed-In Tariffs, Greentechsolar.com, Feb. 20, 2009,

http://www.greentechmedia.com/articles/read/spain-kicks-off-new-solar-feed-in-tariffs-5764/. 61

Id. 62

Id. 63

See infra Appendix A, p. 2. 64

See infra Appendix A, p. 20. 65

See infra Appendix A, p. 21. 66

V. Salas, E. Olias, M. Alonso & F. Chenlo, Overview of the Legislation of DC Injection in the Network

for Low Voltage Small Grid-Connected PV Systems in Spain and Other Countries, 12 Renewable and

Sustainable Energy Reviews 575, 577 (2008); Spain – Background Report on Regulatory Reform in the

Electricity Industry, OECD Country Studies – Spain, 1999, at 15-17.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aCGsB8hGkDIghttp://www.greentechmedia.com/articles/read/spain-kicks-off-new-solar-feed-in-tariffs-5764/

24

These initial Decrees did not result in any major increase in solar PV development,

largely because of the focus on smaller installations and the sub-marginal financial

returns available for larger PV development.

In March of 2004, Royal Decree 436/200467

consolidated the previous feed-in tariff

schemes into a comprehensive system for renewable energy under the Electricity Act

1997.68

The 2004 legislation provided that a generator of renewable energy could choose

between selling the energy to a distributor on either a ―regulated tariff‖ basis, or on a

―market + premium‖ basis.69

The regulated tariff for solar was set at 575% of the

―average electricity tariff‖ (AET - also referred to as the ―reference‖ or ―benchmark‖

tariff) for PV installations of less than 100 kW, and 300% of the AET for PV installations

of more than 100 kW and all CSP installations.70

The AET was calculated according to a

statutory formula, and it was published for the following year through a Royal Decree.71

In 2004 the AET was set at €0.072 per kWh. In 2007, this resulted in a feed-in tariff of

approximately €0.44 per kWh for PV installations of less than 100 kW, and €0.23 per

kWh for PV installations larger than 100 kW and CSP installations.72

The tariff was

guaranteed for 25 years, reducing thereafter to 460% of the AET for the smaller

installations, and 240% for the larger developments, and CSP installations.73

67

English translation available at http://www.feed-in-cooperation.org/wDefault_7/wDefault_7/download-

files/documents/National-

documents/Spain/rd436_2004_en.pdf?WSESSIONID=e38e4ef5bb00c615b2e1e207a58cf8ba. 68

Act 54/1997 On the Electric Power Sector (B.O.E. 1997) available at

http://www.cne.es/cne/doc/legislacion/NE004_05.pdf. 69

Spanish Renewable Energy Association, The New Payment Mechanism of RES-E in Spain – Introductory

report, May 2004, at 3-8. 70

See infra, Appendix A, p. 22. 71

Id. 72

Id. 73

Id.

http://www.feed-in-cooperation.org/wDefault_7/wDefault_7/download-files/documents/National-documents/Spain/rd436_2004_en.pdf?WSESSIONID=e38e4ef5bb00c615b2e1e207a58cf8bahttp://www.feed-in-cooperation.org/wDefault_7/wDefault_7/download-files/documents/National-documents/Spain/rd436_2004_en.pdf?WSESSIONID=e38e4ef5bb00c615b2e1e207a58cf8bahttp://www.feed-in-cooperation.org/wDefault_7/wDefault_7/download-files/documents/National-documents/Spain/rd436_2004_en.pdf?WSESSIONID=e38e4ef5bb00c615b2e1e207a58cf8bahttp://www.cne.es/cne/doc/legislacion/NE004_05.pdf

25

This method applied only to PV installations of greater than 100 kW and CSP

installations, and provided for a market or negotiated price plus a premium of 250% of

the AET for the first 25 years, reducing to 200% thereafter.74

A further 10% incentive is

applied in certain circumstances for participating in the market.75

The measure also provided for revision of tariffs, premiums and incentives in 2006, and

every four years thereafter, or when the level of installed PV reached 150 MW and CSP

reached 200 MW. The measure was very successful in encouraging new solar PV and

CSP development, and by 2007 the targets for installed PV had been exceeded, so a new

Decree was prepared.

Royal Decree 661/2007 replaced the 2004 Decree, although operators of installations that

came into production before the new measure came into force continue to receive their

tariffs under the old measure.76

The 2007 Decree simplified the premium tariff system.

Instead of being calculated as a percentage of the AET, the premium tariff was expressed

as a fixed value paid on top of the market price of electricity. 77

74

The New Payment Mechanism of RES-E in Spain – Introductory Report, Spanish Renewable Energy

Association, May 2004, at 3-8, available at http://www.wind-works.org/FeedLaws/Spain/Report on the

new Spanish RES-E payment mechanism.pdf. 75

Id. See also R. Coenraads et al, Renewable Energy Country Profiles, ECOFYS, Netherlands, February

2008, at 142-143; V. Salas, A changing Spanish Perspective? – Grid issues and Promotion of Building-

Integrated PV, Presentation at the 23rd

European Photovoltaic Solar Energy Conference and Exhibition

(September 1-5, 2008), available at http://www.iea-pvps.org/workshops/0809valencia/presentations/. 76

Royal Decree 661/2007, Government of Spain, Agencia Estatal Boletín Oficial del Estado, available at

http://www.boe.es/aeboe/consultas/bases_datos/doc.php?coleccion=iberlex&id=2007/10556. 77

Renewable Policy Review – Spain, European Renewable Energy Council, 2009, at pp 6-7, available at

http://www.erec.org/fileadmin/erec_docs/Projcet_Documents/RES2020/SPAIN_RES__Policy_review__09

_Final.pdf; R. Coenraads et al, Renewable Energy Country Profiles, ECOFYS, Netherlands, February

2008, at 142-143; V. Salas, A Changing Spanish Perspective? – Grid issues and Promotion of Building-

http://www.wind-works.org/FeedLaws/Spain/Report%20on%20the%20new%20Spanish%20RES-E%20payment%20mechanism.pdfhttp://www.wind-works.org/FeedLaws/Spain/Report%20on%20the%20new%20Spanish%20RES-E%20payment%20mechanism.pdfhttp://www.iea-pvps.org/workshops/0809valencia/presentations/http://www.boe.es/aeboe/consultas/bases_datos/doc.php?coleccion=iberlex&id=2007/10556http://www.erec.org/fileadmin/erec_docs/Projcet_Documents/RES2020/SPAIN_RES__Policy_review__09_Final.pdfhttp://www.erec.org/fileadmin/erec_docs/Projcet_Documents/RES2020/SPAIN_RES__Policy_review__09_Final.pdf

26

For 2007 the feed-in tariff rates were set at:

PV installations of less than 100 kWp – €0.44 for the first 25 years, and €0.352

thereafter;

PV installations between 100 kWp and 10 MWp – €0.418 for the first 25 years,

and €0.334 thereafter;

PV installations between 10 MWp and 50 MWp – €0.23 for the first 25 years,

and €0.184 thereafter; and

CSP installations – €0.269 for the first 25 years, and €0.215 thereafter.78

With CSP installations there was also the option of a market + premium, with the

premium set at €0.254. If this option were taken, there was also a ―cap and floor‖

mechanism, so that the total price paid was not allowed to rise above €0.344 resulting in

windfall profits, or fall below €0.254 leaving the owner with an insufficient return on the

investment.79

Low interest loans are also available for up to 80% of the average costs.

Commentators suggested that the new tariffs would double the returns for larger solar

power installations over 100 kWh.80

The tariffs were to be updated every year until 2012 on the basis of changes in the CPI. A

target of 371 MW was set for PV installations and 500 MW for CSP installations under

the scheme. When 85% of the capacity for each type of technology was achieved, a

Integrated PV, Presentation at the 23

rd European Photovoltaic Solar Energy Conference and Exhibition

(September 1-5, 2008), available at http://www.iea-pvps.org/workshops/0809valencia/presentations/. 78

Id. 79

See infra Appendix A, p. 23; Reuters on New Spanish Feed Law 2007, WindWorks.org, May 28, 2007,

available at http://www.wind-works.org/FeedLaws/Spain/ReutersonNewSpanishFeedLaw2007.html. 80

See infra Appendix A, p. 23.

http://www.iea-pvps.org/workshops/0809valencia/presentations/http://www.wind-works.org/FeedLaws/Spain/ReutersonNewSpanishFeedLaw2007.html

27

deadline would be fixed to close off new projects until new targets are set. 81

Dramatic

expansion of solar projects in Spain resulted from these new tariffs resulting in

suspension of the program and new legislation in 2008.

Royal Decree 1578/200882

deals with installations in a new way and substantially reduces

the fixed tariff levels. For roof and building integrated solar PV with a capacity of less

than 20 kWp, a tariff of €0.34 per kWh is provided, and for more than 20 kWp, the tariff

is €0.32 per kWh. For free-range/ground installations the €0.32 per kWh rate applies.

These tariffs will endure for 25 years, but unlike the 2004 and 2007 Decrees, no premium

rates are specified after 25 years.83

Importantly, any projects commenced under the

earlier Decree that were not completed and generating electricity by September 29, 2008

will lose the higher rates under the earlier measure.84

The cap on new installations for 2009 is set at 400 MW, with 133 MW allocated to free-

range plants, and 267 MW for roof and building integrated plant. Ninety percent of that

latter capacity is targeted for installations of more than 20 kWp. A further 100 MW is

held in reserve for free-range plants to ease the industry‘s transition to the new regime.

81

Id. 82

Royal Decree 1578/2008, Government of Spain, Agencia Estatal Boletín Oficial del Estado, 2008,

available at http://www.boe.es/boe/dias/2008/09/27/pdfs/A39117-39125.pdf. 83

M. Roberts, Spain Ratifies New 500 MW Solar Subsidy Cap, Reuters, Sept. 26, 2008, available at

http://www.reuters.com/articlePrint?articleId=USTRE48P7JW20080926; Photovoltaic in Spain: The First

Round of Inscription for the New Feed-in Tariff is Open!, Renewable Energy Industry, Oct. 31, 2008,

available at http://www.renewable-energy-industry.com/business/press-

releases/newsdetail.php?changelong=En.GB&newid=2946. 84

Photovoltaic in Spain: The First Round of Inscription for the New Feed-in Tariff is Open!, Renewable

Energy Industry, Oct. 31, 2008, available at http://www.renewable-energy-industry.com/business/press-

releases/newsdetail.php?changelong=En.GB&newid=2946; Spain Special Report: Green with Energy, The

Lawyer, May 25, 2009, available at http://www.thelawyer.com/spain-special-report-green-with-

energy/1000803.article.

http://www.boe.es/boe/dias/2008/09/27/pdfs/A39117-39125.pdfhttp://www.reuters.com/articlePrint?articleId=USTRE48P7JW20080926http://www.renewable-energy-industry.com/business/press-releases/newsdetail.php?changelong=En.GB&newid=2946http://www.renewable-energy-industry.com/business/press-releases/newsdetail.php?changelong=En.GB&newid=2946http://www.renewable-energy-industry.com/business/press-releases/newsdetail.php?changelong=En.GB&newid=2946http://www.renewable-energy-industry.com/business/press-releases/newsdetail.php?changelong=En.GB&newid=2946http://www.thelawyer.com/spain-special-report-green-with-energy/1000803.articlehttp://www.thelawyer.com/spain-special-report-green-with-energy/1000803.article

28

For 2010 and 2011 the caps are to be 500 MW to give a total 1,500 MW for the three

years, with the intention of revisiting the feed-in tariff structure in 2012.85

In 2008, Spain was the clear world leader in solar PV installation with 2.6 GW of new

capacity – over half the global total in that year. Spain has also taken the dominant

position in CSP installation and R & D, commissioning the 50 MW Andosol 1 plant in

2008, and upwards of another 800 MW in the process of construction or advanced

planning for commissioning over the next 4 years.86

But this all came at a price—

significant disruption in the marketplace caused first by incentives that were too high

driving unsustainable levels of development and then suspension of the program because

of the high cost resulting from over development.

As with Germany, the ―feed-in‖ tariff system in Spain does not rely upon direct public

financial support. Rather, it creates incentives for private investment, and it provides

economic incentives for continued technology development to increase efficiency and

improvements in manufacturing and installation techniques to reduce costs.

Employment in the renewable energy sector which was estimated to be around 94,925

jobs by 2010, with 11,640 in the CSP industry, 9,186 in solar PV, and 4,632 in solar

85

Photovoltaic in Spain: The First Round of Inscription for the New Feed-in Tariff is Open!, Renewable

Energy Industry, Oct. 31, 2008, available at http://www.renewable-energy-industry.com/business/press-

releases/newsdetail.php?changelong=En.GB&newid=2946; M. Roberts, Spain Ratifies New 500 MW Solar

Subsidy Cap, Reuters, Sept. 26, 2008, available at

http://www.reuters.com/articlePrint?articleId=USTRE48P7JW20080926. 86

The State of Renewable Energies in Europe, Intelligent Energy – Europe Programme, 8th

EurObserv‘ER

Report, 2008, at 72.

http://www.renewable-energy-industry.com/business/press-releases/newsdetail.php?changelong=En.GB&newid=2946http://www.renewable-energy-industry.com/business/press-releases/newsdetail.php?changelong=En.GB&newid=2946http://www.reuters.com/articlePrint?articleId=USTRE48P7JW20080926

29

thermal heating,87

has declined as a result of changes in the legislation. Estimated

investment in Spain‘s renewable energy industry in the 2005-2010 period was €23.6

billion, of which €2.16 billion is in CSP, €2.4 billion in solar PV,88

but this figure is also

likely to be smaller based on the suspension of the 2007 tariffs and the changes in the

legislation.

c. Australia

In Australia, some States and the Australian Capital Territory have introduced, or are

about to introduce, state-level feed-in tariff schemes for solar PV installation. A national

feed-in tariff also is being considered.

1. The Australian Capital Territory

The Electricity Feed-in (Renewable Energy Premium) Act of 200889

provides a generous

gross feed-in tariff system. Participants who install solar PV systems, or other renewable

sources of less than 30 kWh capacity, will be paid a tariff at the rate of 3.88 times the

ordinary retail rate of electricity for all electricity fed into the grid, and with their own

usage separately metered. The tariff is payable from March 1, 2009 until June 30, 2010 is

set at 50.05c per kWh generated for systems up to 10kW. The tariff is set each year, but

is guaranteed for up to 20 years from commencement of generation.90

It is anticipated the

87

Summary: The Spanish Renewable Energy Plan 2005-2010, Ministry of Industry, Tourism and

Commerce, at 78, available at http://www.feed-in-cooperation.org/content/view/28/50/. 88

Id.; Summary: The Spanish Renewable Energy Plan 2005-2010 (in English), Ministry of Industry,

Tourism and Commerce, at 58, available at http://www.feed-in-cooperation.org/content/view/28/50/. 89

Electricity Feed-in (Renewable Energy Premium) Act of 2008, (March 1, 2009) available at

http://www.legislation.act.gov.au/a/2008-21/default.asp. 90

ACT Electricity Feed-in Tariff Scheme Fact Sheet, Department of the Environment, Climate Change,

Energy and Water [ACT], available at http://www.act.gov.au/ (follow ―Environment,‖ then

―Sustainability‖).

http://www.feed-in-cooperation.org/content/view/28/50/http://www.feed-in-cooperation.org/content/view/28/50/http://www.legislation.act.gov.au/a/2008-21/default.asphttp://www.act.gov.au/

30

scheme may be extended to larger installations after June 2009.

2. Victoria

The Energy Legislation Amendment Bill amending the Electricity Industry Act 2000 was

passed on 9 August 2007. The measure introduced a net metered feed-in tariff of $A0.60c

per kWh for electricity fed into the grid from solar PV generation installations of up to

3.2kW in size. The scheme is set to run for 15 years. Renewable generation installations

of up to 100 kWh capacity using biomass, hydro or wind receive only the retail price for

electricity fed into the grid.91

3. South Australia

The Electricity (Feed-in Scheme-Solar Systems) Amendment Act 2008 came into force

July 1, 2008, and will expire in 20 years in 2028. It provides a net tariff of $A0.44c per

kWh fed into the grid from a solar PV system operated by an electricity consumer that

uses less than 160 MWh per annum.92

4. Queensland

The state of Queensland has a very similar net feed-in tariff to the South Australian

system, called the ―Solar Bonus Scheme.‖ Consumers who use less than 100 MWh a

year, and who install or have a solar PV system will receive $A0.44 c per kWh fed into

91

Feed-in Tariffs, Government of Victoria, Department of Primary Industries, available at

http://www.dpi.vic.gov.au. 92

South Australia's Solar Feed-In Scheme, Government of South Australia, available at

http://www.climatechange.sa.gov.au/index.php?page=feed-in-scheme.

http://www.dpi.vic.gov.au/http://www.climatechange.sa.gov.au/index.php?page=feed-in-scheme

31

the grid. The amount is guaranteed until 2028, although it will be reviewed after 10 years

or when 8 MWh of solar systems are installed.93

5. Western Australia, New South Wales, Tasmania and

Northern Territory

These States and the Northern territory have not yet implemented a feed-in tariff scheme,

although they have indicated their intention to do so, or investigate the system. Western

Australia appears to prefer a limited gross feed-in tariff structure paying a premium rate

of $A0.60c per kWh for solar PV electricity until the capital costs have been recovered at

which time it reverts back to a lower rate.94

New South Wales is considering a feed-in tariff scheme for small-scale, grid connected,

solar PV installations, and a taskforce is currently considering public submissions before

finalizing recommendations to the Government. It is uncertain whether the

recommendations will favor a gross or net metering scheme, although the latter is more

likely given the current net metering systems used by the main electric utilities.95

The Tasmanian Office of Energy Planning and Conservation is currently considering

feed-in tariffs for renewable energy producers, but as yet no concrete proposals have been

agreed. It is likely the preference will be for a net tariff arrangement for excess electricity

93

Solar Bonus Scheme, State of Queensland, Office of Clean Energy, available at

http://www.cleanenergy.qld.gov.au/solar_bonus_scheme.cfm. 94

Government of Western Australia, Sustainable Energy Development Office Homepage available at

http://www1.sedo.energy.wa.gov.au/pages/re_feed-in_tariff.asp. 95

For the current status of the proposals see New South Wales Government, Department of Water and

Energy Homepage, available at http://www.dwe.nsw.gov.au/energy/sustain_renew_fit.shtml.

http://www.cleanenergy.qld.gov.au/solar_bonus_scheme.cfmhttp://www1.sedo.energy.wa.gov.au/pages/re_feed-in_tariff.asphttp://www.dwe.nsw.gov.au/energy/sustain_renew_fit.shtml

32

fed into the grid from small scale solar and other renewable electricity installations.96

As yet the Northern Territory has not announced proposals for a preferential Territory-

wide feed-in tariff, although owners of PV installations can sell their power at near

market retail rates, (currently 15.52c per kWh).97

The town of Alice Springs became a

―Solar City‖ in May 2008 as part of the Australian Government‘s ―Solar Cities

Programme.‖ Along with a number of other solar energy and efficiency measures, owners

of grid-connected solar PV systems can sell their excess energy to the grid at $A0.45.76 c

per kWh capped at $A5.00 per day.98

d. Ontario, Canada

The Province of Ontario‘s feed-in tariff will go into effect on November 30, 2009. The

Ontario Power Authority asserts that the program is North America‘s first comprehensive

guaranteed pricing structure for renewable energy production.99

The Ontario program‘s

structure is somewhat different from other feed-in tariffs. Rather than qualifying for the

feed-in tariff after a project is ready for operation, the Ontario system allows solar

facilities up to three years to begin production after a contract has been signed. To

maximize the chances that a facility will actually be constructed, the producer must

provide a security payment at the time the contract is signed. Solar PV projects are

96

See Recent Developments, Tasmanian Government, Dept. of Infrastructure, Energy & Resources,

available at http://www.dier.tas.gov.au/energy/new_developments. 97

Going Solar - The Process of Installing a Photovoltaic (PV) System in Your Home, PowerWater, July 1,

2009, available at

http://www.powerwater.com.au/environment/renewable_energy/solar_buyback_program. 98

See Alice Solar City website, available at http://www.alicesolarcity.com.au. 99

See Feed-In Tariff, Program Preview, Version 1.1, Ontario Power Authority, Sept. 30, 2009, at 2,

available at

http://fit.powerauthority.on.ca/Storage/98/10719_FIT_Program_Overview_for_posting_Oct_1.pdf.

http://www.dier.tas.gov.au/energy/new_developmentshttp://www.powerwater.com.au/environment/renewable_energy/solar_buyback_programhttp://www.alicesolarcity.com.au/http://fit.powerauthority.on.ca/Storage/98/10719_FIT_Program_Overview_for_posting_Oct_1.pdf

33

limited to 10 MW and are priced from $.44 to $.80 per KW with very small projects

drawing the top rate. Prices are guaranteed for 20 years. A price adder is available for

projects run by aboriginals (1.5 cents) or that are community-based (1.0 cents). The law

contains a domestic content requirement.100

iv. Feed-In Tariffs in the United States

a. Authority of States to Adopt Feed-In Tariffs

One of the key questions in the United States is whether states have the authority to enact

feed-in tariffs or whether the approach is preempted by the Federal Power Act (FPA).101

This question is complicated by the history of utility regulation in the United States and

the nature of federal utility law. FERC under the FPA regulates wholesale sales of

electricity to ensure that the rates charged are ―reasonable and just.‖ States have some

authority under the Public Utility Regulatory Policies Act (PURPA)102

to require utilities

to purchase energy from qualified renewable energy facilities at rates that do not exceed

―avoided cost‖ that would otherwise be incurred in acquiring additional capacity. States

have authority to regulate retail rates for electricity. This complicated regulatory

structure makes it more difficult to establish feed-in tariffs in the United States in

comparison to countires where the national government has more direct authority over

utility price structures.

100

Id. 101

16 U.S.C. § 791a - 825r. (1935). 102

Public Utility Regulatory Policies Act of 1978, Pub. L. No. 95-617, 92 Stat. 3117 (codified as amended

in scattered sections of the U.S.C.).

34

Among the key questions that must be addressed are whether feed-in tariffs are

wholesale rates that are subject to federal rate setting or retail rates that fall under state

jurisdiction; whether the determination of how much a utility pays for power, as opposed

to the cost of power sold by a generator into the market, is a decision that can be made by

a state public utilities commission; and whether feed-in tariffs can be justified for certain

types of facilities based on a state determination of what constitutes ―avoided cost.‖

A study recently conducted by the National Renewable Energy Laboratory addressed

these questions.103

The study found that existing FERC precedents constrain the ability

of states to adopt feed-in tariffs.104

The NREL study identifies three paths that those

interested in supporting state feed-m tariffs can follow under current law, as well as the

option of seeking new clarifying federal legislation.105

Path one would require direct

state support (in the form of renewable energy credits, tax incentives or subsidies) to

make up the difference between the avoided cost price that a state could establish under

PURPA and the price needed to attract renwable energy providers.106

This path is, of

course, limited by the level of financial support states would be willing to provide to

renewable energy providers.

The second path would involve a state law establishing a tariff and then incorporating

that tariff into the utilities‘ rate base. This path would require FERC to ―clarify that state-

103

Scott Hempling, Carolyn Elefant, Karlynn Cory & Kevin Porter, Renewable Energy Prices in State-level

Feed-in Tariffs: Federal Constraints and Possible Solutions (National Renewable Energy Laboratory

2009), available at http://www.nrel.gov/docs/fy10osti/47408.pdf. 104

Id. at iv-v. 105

See Hempling et al., supra note 103, at v. 106

Id. at 46.

35

law utility obligations to purchase renewable energy from entities with QF [qualified

facility] status (20 MW or smaller) are not subject to the PURPA avoided cost cap or

subject to FPA [Federal Power Act] filing requirements.‖107

This path is not clearly open

to states unless FERC revisits existing precedent that a selling QF is bound by PURPA‘s

avoided cost cap even if the buyer‘s obligation arises under state law.108

The third path suggested by NREL would be for FERC to establish safe harbors or other

guidance that would indicate that state feed-in tariff rates are ―just and reasonable‖ under

the FPA.109

As NREL notes, FERC has not explored this option and therefore the path

would require FERC to open an administrative inquiry or rulemaking procedure.110

The NREL study concludes

Because of the multiple legal uncertainties…participants in this

policymaking area should consider discussing with FERC informal steps

to a rulemaking proceding…. A useful outcome to the process would be a

series of FERC pronouncements that:

(a) Clarify the law on PURPA preemption and FPA preemption in the various feed-in tariff scenarios…;

(b) Create processes for establishing cost-based safe harbors for various technologies, project sizes , and geographic areas, where

these safe harbors applied in both the PURPA and FPA context;

(c) Create a process by which sellers under feed-in tariffs could obtain findings of no market power; and

(d) Evaluate the effects of these modifications after several years.111

107

Id. 108

Id. at viii. 109

Id. 110

Id. 111

Id. 46-47.

36

The follwing is a more in depth discussion of the complexities associated with state feed-

in tariffs. The Federal Power Act (FPA) and the Public Utility Holding Company Act

(PUHCA)112

established the basic regulatory structure for public utilities in 1938. Under

these acts, states regulate retail electric rates and intrastate utility activities while the

federal government regulates utility interstate activity and wholesale rates.113

This

regulatory framework remained essentially unchanged until the enactment in 1978 of the

Public Utility Regulatory Policy Act (PURPA). A Congressional Research Service

report explained one of the key purposes of PURPA as follows:

The original intent of §210 of PURPA was to encourage alternative

sources of electricity beyond traditional generation facilities, without these

facilities being subject to all existing federal and state utility regulations.

Perhaps the most far-reaching provision of PURPA encourages

cogeneration and small power production with so-called qualifying

facilities (QFs). QFs are not considered to be utilities, and are therefore

exempt from regulation under PUHCA and the FPA. To be considered a

QF, a cogenerator or small power producer must meet certain FERC rules

on fuel use, size, fuel efficiency, and reliability.

PURPA shifted the price basis for wholesale electricity from the seller's

cost to the purchaser's cost. PURPA indicates that QF power is to be

purchased at the "incremental cost" of alternative energy to the utility.

This rate, referred to as the avoided cost, is the likely costs for both energy

and facilities that would have been incurred by the purchasing utility if

that utility had to provide its own generating capacity. These rates are not

based on actual costs incurred in the production of electricity. The

determination of avoided costs has been the responsibility of the states,

and procedures to assign avoided costs have varied greatly between

states.114

(Citations omitted)

Although there are some exceptions, for most purposes a ―qualifying facility is either a

―small power production facility‖ or a co-generation facility. A small power production

112

15 U.S.C. § 79 et seq. (1935) 113

Amy Abel & Jon Shimabukuro, RS20146: Electricity Restructuring Bills: A Comparison of PURPA

Provisions (Congressional Research Service 1999), available at

http://ncseonline.org/nle/crsreports/energy/eng-50.cfm. 114

Id. at n. 102.

http://ncseonline.org/nle/crsreports/energy/eng-50.cfm

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facility is ―a generating facility of 80 MW or less whose primary energy source is

renewable (hydro, wind or solar), biomass, waste, or geothermal resources.115

However,

the Energy policy Act of 2005 allowed utilities to seek an exemption from this

requirement under certain conditions for QFs that exceed 20MW in generating

capacity.116

―Avoided cost‖ is the incremental cost to an electric utility of electric energy or capacity

which, but for the purchase from the QF, such utility would generate itself or purchase

from another source.117

As the Congressional Research Service report noted, because

states are able to make the determination of what constitutes avoided cost, there is

significant variation from one state to another on this issue.

1. Wholesale versus retail rate regulation

It is absolutely clear that FERC has the authority to regulate wholesale electric rates and

that states have the authority to regulate retail electricity rates.118

The issue in an

increasingly complex electricity market is what constitutes a ―wholesale‖ sale versus a

―retail‖ sale. The Supreme Court in New York v. FERC sheds some light on this issue.

The case dealt with challenges to a FERC decision to regulate transmission rates in

unbundled sales of electricity. The court found that the restriction on FERC jurisdiction

related to retail sales did not apply to transmission since transmission in an

115

FERC: Industries – What is a Qualifying Facility? (FERC 2010), available at

http://www.ferc.gov/industries/electric/gen-info/qual-fac/what-is.asp. 116

16 U.S.C. § 824A-3(m)(1)(A)-(C) (2005); 18 C.F.R. § 292.309 (2006). See also Solarbuzz, supra note 8

for a discussion of the details related to the exemption and its potential impact on feed-in tariffs. 117

See 18 C.F.R. § 292.101(b)(6) (1995); see also FERC: Industries – What are the Benefits of QF Status?

(FERC 2010), http://www.ferc.gov/industries/electric/gen-info/qual-fac/benefits.asp. 118

New York v. FERC, 535 U.S. 1 (2002).

http://www.ferc.gov/industries/electric/gen-info/qual-fac/what-is.asphttp://www.ferc.gov/industries/electric/gen-info/qual-fac/benefits.asp

38

interconnected grid, is an inherently interstate activity.119

However, the Court found that

FERC acted reasonably in not asserting jurisdiction over unbundled sales of electricity

based on the idea that such sales look more like a retail transaction and that parceling out

jurisdiction over unbundled sales would be very difficult.120

The New York v. FERC decision points out that the world of electric energy sales is

complex in an unbundled and deregulated setting. In the context of FITs, a generator

who sells electricity to a traditional electric utility that then resells the electricity to its

customers would likely be engaged in a wholesale transaction. States in this

circumstance could only establish rates for qualifying facilities and those rates could not

exceed avoided costs. If, however, the generating facility sells directly at retail and uses

the transmission lines only as a conveyance to the customer, the transaction would likely

be a retail sale and subject to a state FIT.

2. Purchase versus sale

The case of Pike County Light and Power Company v. Pennsylvania Public Utility

Commission121

introduces an additional complexity into the FERC/state jurisdictional

question. Pike County challenged a reduction in allowable expenses that it had claimed

in a rate case. The Pennsylvania Public Utility Commission determined that a power

purchase from Pike‘s parent company, Orange & Rockland, was against the public

interest. Pike had argued, among other things, that the issue before the Commission

119

Id. at 23. 120

Id. at 28. 121

Pike County Light and Power Co. - Ele. Div. v. Penn. Pub. Util. Comm‘n, 465 A.2d 735 (1983).

39

involved wholesale rates and the Commission was therefore prempted from making the

determination. The Court found:

The FERC does not analyze Pike‘s cost of service data or purchased

power alternatives in making its determination. The FERC focuses on the

on Orange & Rockland to determine whether it is just and reasonable for

that company to charge a particular rate but makes no determination of

whether it is just and reasonable for Pike to incur such a rate as a expense.

The PUC, on the other hand, has no jurisdiction to analyze Orange &

Rockland‘s cost of service data and makes no determination as to the

reasonableness for Orange & Rockland to charge its rate. The PUC

focuses on Pike and its cost of service data to determine whether it is

reasonable for Pike to incur such costs in light of available alternatives.

So while the FERC determines whether it is it is against the public interest

for Orange & Rockland to charge a particular rate in light of its costs, the

PUC determines whether it is against the public interest for Pike to pay a

particular price in light of the alternatives. 122

(Emphasis added.)

The Pike case indicates that a state can determine whether it is in the public interest for a

public utility to purchase energy from particular sources.

One potential implication of the decision is that, since states have authority over purchase

decisions, they can specify through a FIT the rate at which such purchases can be made.

However, this may not be sufficient to authorize the transaction. Even though a state

may establish a purchase price, FERC may still require that the contract be submitted for

approval of the ―cost‖ of the purchase to review whether the transaction may result in a

rate that is not ―reasonable and just‖ under the FPA. 123

122

Id. at 274. 123

See Hempling et al., supra note 103, at 26-29.

40

3. What constitutes avoided cost

Avoided cost is a key concept under PURPA. States can require that utilities purchase

energy from renewable energy facilities if the cost of doing so does not exceed the cost a

purchasing utility otherwise would incur to generate capacity (or energy) itself or

purchase from another source. Exactly what constitutes avoided cost has, however, been

an issue of considerable dispute.

States have