The Honorable Senator Christine Kehoe
Chair, Senate Appropriations Committee
State Capitol, Room 5050
Sacramento, CA 95814
By FAX to: (916) 327-2188
RE: AB 1106 California Feed-in Tariff Policy- support if amended
Dear Senator Kehoe,
Feed-in tariffs are the world’s most successful policy for stimulating rapid growth of renewable energy in the fairest manner possible at the lowest cost to consumers.
Feed-in tariffs in Germany have created 280,000 new jobs and as much as $75 billion in new economic activity. And despite the worldwide financial crisis, Germany, France, and Spain continue rapid development of their domestic renewable energy resources.
The reason for this success, as Congressman Jay Inslee (D-WA-01) recently noted in a briefing, is that “A lot of the charm of the feed-in tariff is [its] solid, take-it-to-the-bank security and confidence for the investing community. You get access to what is very difficult to get right now: financing.”
Equally important, feed-in tariffs have proven to be the least expensive way to develop the diverse mix of renewable resources we need in California. Study after study has shown that feed-in tariffs are the cheapest-and most egalitarian-way to develop renewable energy. Everyone can participate, not just wealthy owners of McMansions as under current California policy.
AB 1106 could be a powerful force for California economic development and job creation, but only if amended to be a successful policy.
Based upon best practice elsewhere AB 1106 must contain the following elements, if it is to be successful.
- Program Size Cap: The cap must be as high as possible to encourage manufacturers to locate in the state to meet the demand for renewable energy technology. Ontario’s precedent-setting policy has no cap. The cap in AB 1106 should be set at the state’s RPS targets. The RPS cap could be prorated such that an annual cap is no less than 2% of the state’s electricity consumption until the RPS target is reached.
- Project Size Cap: The project size cap should be raised to 20 MW as recommended by the California Energy Commission. There is no logical reason to limit projects to only 5 MW, especially for wind, geothermal, and concentrating solar projects.
- Eliminate Tier 2: There should be no “Tier 2”. Nowhere in the world that has been successful developing renewable energy has used this approach. Tier 2 restates the failed status quo that this bill is supposed to repair.
- Place all projects under Tier 1: All tariffs should be based on the cost of generation plus a reasonable profit. This is the only way to create successful feed-in tariffs. The cap, as noted above, for Tier 1 projects, should be 20 MW.
- Contract Terms: All contracts under AB 1106 should be for 20 years or longer. Shorter contract terms are ineffective and raise rates to consumers. Longer contracts assure that ratepayers receive the economic benefits that renewable energy provides at the lowest costs.
- Differentiated Tariffs: Tariffs should be differentiated by technology for all projects up to 20 MW.
- Wind Tariffs: Wind energy tariffs should be further differentiated by type of technology and wind resource intensity. There should be a tariff for “small” wind (wind turbines less than 10 meters in diameter) and for “large” wind. In addition, the tariffs should be differentiated for large wind turbines on the basis of resource intensity. This method is used successfully in Germany and France and has been introduced into Switzerland and was specifically designed to control excessive profits of large wind projects. This policy encourages economic development of wind energy across the state-not just in a few windy passes-while limiting costs to consumers.
- Open to All Californians: It’s critical to success of AB 1106 that the program is open to all Californians, and that generators do not need to be a “customer” of an electric utility to participate. Californians should also be able to develop “greenfield” projects anywhere in a utility service area, and not be limited to where an individual customer is located. This will allow “community renewable power development” that is currently prohibited in California.
- Tariffs Must Be Based on the Cost of Generation: To stimulate the economy, create the jobs needed in California, and meet the state’s RPS and global warming targets, tariff rates must be based on the cost of generation plus a reasonable profit. Ontario’s new feed-in tariffs are all based on such calculations. California’s PUC is fully capable of determining a fair return on investment that protects ratepayers. The PUC has been doing so for decades. All successful feed-in tariff programs have based tariffs on the cost of generation. This is how electric utilities in North America have been regulated for a long time, and it is reasonable to extend this successful principle to renewable sources of generation.
California has been living on its renewable energy laurels for more than two decades and is sliding into irrelevancy with its complicated, unfair, costly, and ineffective renewable energy policies. As more and more North American jurisdictions are turning to full systems of differentiated feed-in tariffs, California is being left behind.
I strongly encourage you to amend AB 1106 to incorporate these changes. By making these changes, AB 1106 has the potential to put California back into the forefront of renewable energy development in North America that it gave up 25 years ago.
Paul Gipe is an author, advocate, and renewable energy industry analyst. For more on this topic, see www.wind-works.org and go to the Feed Law pages.