The following article appeared in an edited form in the October, 2004 issue of North American Windpower.
Slowly recovering from a long addiction to cheap hydropower, Canadians may be on the verge of potentially significant changes in how they obtain renewables, especially wind. One mechanism under consideration is Renewable Energy Tariffs.
Canadians may be led by the country’s smallest province, Prince Edward Island, or PEI, as it’s known north of the border. This fall PEI’s provincial parliament will consider Minister of Energy Jamie Ballem’s proposal to supply 100 percent of the province’s electricity with renewable energy, nearly all of it from wind. Ballem plans to meet that goal in part with a renewable tariff for community-owned wind turbines, patterned after the tariff used in Denmark during its wind heyday.
Ballem’s timing couldn’t have been better. Renewables are on the nation’s political agenda. Three of the four major political parties vied with each other in their support of wind energy during the federal parliamentary campaign this past summer. Imagine if the presidential candidates in Canada’s big, brawling neighbor to the south campaigned on a platform saying, “My wind program is bigger than yours,” and saying it in both English and French!
Renewable Tariffs–or, as some North Americans dub them, production-based premium payments–are becoming ever more mainstream. Ontario may offer “something like” the minimum price payments found in European programs, according to senior provincial leaders. Exactly what that means won’t be known for months.
Though common in continental Europe, minimum price systems for the rapid deployment of renewables are a novel mechanism to North Americans. Ontario is willing to consider these fixed-price contracts because the province finds itself between a rock, diminishing electricity supply, and a hard place, growing demand.
Ontario, Canada’s industrial heartland, is reeling from a disastrous, two-decade affair with nuclear power. Every man, woman, and child carries a $3,000 debt for the province’s nuclear program. Not long after the Minister of Energy Dwight Duncan promised another $1 billion CAD of public funds for restarting one of the idled A reactors at Pickering, Ontario, cracks were found in the site’s B reactors, potentially removing 10% of the province’s supply.
Following last year’s calamitous power outage, power has been a central topic of debate. To compound the problem, two of the three major parties promised during the provincial parliamentary campaign to close Ontario’s coal-fired plants. They differed only in how fast they would do so.
Ontario’s ruling party now finds itself saddled with an inventory of aging nuclear reactors–a number of which are not operating, and more of which may be taken out of service for unexpected repairs–and a campaign commitment to close the province’s coal plants.
The province announced, with much fanfare, an RFP for a modest 300 MW of renewables. The cumbersome and complex bidding system was repeatedly delayed and the winning projects need not be built until late into the government’s mandate.
Meanwhile, consumers long accustomed to subsidized rates continue to squander electricity. Ontario is a province where empty skyscrapers light the night sky, cool air wafts out of the open windows of air-conditioned buildings, and compact fluorescents are as rare as ice on the skating rink of Toronto’s Nathan Phillips Square in mid-summer. Ontario’s per capita consumption rivals that of Texas.
With these conditions in mind, Minister of Energy Duncan called for “creative solutions” to the province’s dilemma. Renewable tariffs, such as those used in Germany, may provide one alternative.
For North Americans, the numbers from Germany are simply staggering. Since 1991 when renewable tariffs were launched, the Germans have installed more than 14,000 megawatts of wind-generating capacity, more than twice the amount constructed in all of North America. This year Germany is expected to install more than 200 MW of solar-electric systems–50% more than last year–representing $1.7 billion CAD of private investment.
Germany now leads the world in almost every category of renewable energy development. It is the world’s largest manufacturer of wind turbines. In solar-electric systems, it is second only to Japan. Germany leads Europe in generating electricity from biomass as well.
While Americans vainly struggle to re-instate their Production Tax Credit for wind energy, Canadians push to increase payments under the ill-named WPPI (Wind Power Production Incentive), and environmental groups clamor for Renewable Portfolio Standards, the Germans just forge ahead with their Renewable Tariffs.
While the Danes may have created the concept of renewable tariffs, it was the Germans who took the idea to the next level and put the power of the world’s third largest industrial economy behind it.
Germany recently revised their ground-breaking Renewable Energy Sources Act (Erneuerbare Energien Gesetz, or EEG) which not only explicitly states that renewable power generators have a right to connect to the grid, but also spells out exactly how much they will be paid and for how long. The EEG sets out specific prices for a host of technologies, from wind energy to biomass plants. It’s this level of detail that separates what French researcher Bernard Chabot calls Advanced Renewable Tariffs from the one-time Danish system and the earlier German feed law (Stromeinspeisungsgesetz).
More than 45,000 people are employed in the German wind industry, and another 10,000 work in the solar-electric sector. As many as 135,000 jobs are attributed to renewable energy in Germany.
All together, Germany’s Renewable Tariffs have resulted in 50,000 PV installations, 1,600 biogas plants, 6,000 small hydro plants, and some 15,000 wind Turbines. The 70,000 renewable generators built under Renewable Tariffs produce 5% of Germany’s electricity.
Worldwatch’s Janet Sawin notes that with so many people employed in the renewables industry and with so many people owning solar, wind, and biomass plants, renewable energy enjoys broad political support from all walks of life.
Renewable Tariffs Elsewhere
It would be easy to dismiss Renewable Tariffs if they were successful only in Germany. That’s not the case, however. Renewable Tariffs, Feed Laws, or–as Ole Langniss at the Center for Solar Energy & Hydrogen Research in Stuttgart calls them–Minimum Price Standards, have driven Spain to become a wind powerhouse in its own right. Spanish wind development rivals that of the USA.
France, a country not known for its enthusiasm for non-nuclear sources of energy, has embraced Chabot’s Advanced Renewable Tariffs. Though the French system is not without its weaknesses–chief among them being a tariff for solar-electric systems too low for profitable development–it has spurred feverish activity. Chabot, a researcher at ADEME (Agence de l’Environnement et de la Maitrise de l’Energie) in the south of France, reports that since French Renewable Tariffs were implemented, some 14,000 megawatts of applications for building permits have been filed. French planning bureaucracy is now the only roadblock to another market the size of those in Spain and Germany.
Today there are nine countries in Europe and South America using Renewable Energy Tariffs as the principal pricing mechanism. Two more European countries are considering Renewable Tariffs: Italy for solar-electric systems, and the Czech Republic for wind and solar energy. Turkey’s parliament will debate the issue when it returns from its summer recess this fall.
More significantly, China has concluded that it’s not ready for Renewable Portfolio Standards and their sophisticated trading schemes. At the World Wind Energy Association’s annual conference in Beijing this November, China is expected to announce that it will move forward with some kind of Renewable Tariffs.
With the political uncertainty in the USA, anything is possible as prices for both oil and natural gas rise simultaneously.
There are even faint stirrings of interest in Renewable Tariffs in the USA. Advocates are no longer limited to Europe-savvy academics like Jim Manwell at the University of Massachusetts, solar industry observers such as Janet Sawin at Worldwatch, or campaigners like Steve Sawyer at Greenpeace International.
Oregon’s Wind Working Group recently featured a presentation on Renewable Tariffs hosted by Carel DeWinkel of Oregon’s Office of Energy. Intrigued, Washington state’s Wind Working Group followed suit shortly afterwards.
Renewable Energy Tariffs are not only holding their own against the RPS and problem-plagued tendering systems, they’re gaining converts. Ole Langniss, in his masterly doctoral thesis concluded that “There is no policy shift toward RPS.” Langniss found that the number of countries adopting Renewable Tariffs continues to grow. He’s not alone. Worldwatch’s Janet Sawin reached a similar conclusion in her briefing for the World Renewable Energy conference in Bonn this past spring.
Like Langniss, Worldwatch’s Sawin sums up the different market mechanisms for developing wind and solar energy by noting that Renewable Tariffs, or pricing laws, have consistently proven to be the most successful. Countries with Renewable Tariffs see the most significant growth and the strongest domestic industries.
As Worldwatch’s Sawin found, Renewable Tariffs can lead to the rapid development of renewables when conditions are right. The price per kilowatt-hour must be high enough and available long enough to ensure profitable opportunities for a multitude of players. Interconnection must also be readily available to all. And, as the French have shown, permitting can remain a stumbling block for any pricing mechanism. Still, the German experience proves that when all conditions are met, development can proceed apace.
Using Renewable Tariffs, Spain installed 2,000 MW of wind within five years, and Germany installed 3,5000 MW in one record-breaking year. Based on experience in Spain and Germany, it’s conceivable that Ontario could install 2,000 MW of wind within four years, reach 4,000 MW in six years, and operate as much as 8,000 MW by 2012, producing 10% of the province’s supply.
That’s a lot, yes, but it doesn’t exhaust Ontario’s potential. Southern Ontario is about the same size as Germany. One study estimated that Southern Ontario has the potential for 24,000 MW of wind.
PEI’s Energy Minister Ballem showed that an aggressive renewables policy is politically acceptable. By prominently singling out Renewable Tariffs, he also showed that this pricing concept is adaptable to the North American market.
It’s not surprising. Renewable Tariffs are simply coming home. After all, California’s famed Standard Offer No. 4 contracts were the forerunners of Europe’s Renewable Tariffs. The SO4 contracts launched an industry.
Now it’s Canada’s turn. Adoption of Renewable Energy Tariffs by PEI and Ontario could lead to a continental boom in renewable energy development.
At the time of writing Paul Gipe was the Policy Director of the Ontario Sustainable Energy Association in Toronto, Canada. He is the author of Wind Power: Renewable Energy for Home, Farm, and Business (ISBN: 1-931498-14-8), 2004.