Bernard Chabot presented a full-day workshop July 13 in San Francisco on how to use the Profitability Index Method to calculate feed-in tariffs for wind and solar energy. This is the third Chabot workshop held in the USA. Previous workshops were held in Lansing, Michigan, and Boston, Massachusetts. The Lansing workshop was sponsored by the World Future Council and the Michigan Chapter of the Sierra Club. The Boston workshop was sponsored by the World Future Council and Meister Consultants.
The San Francisco workshop was sponsored by the Kern-Kaweah Chapter of the Sierra Club.
There were 36 participants in the San Francisco price-setting workshop held at the Sierra Club’s national headquarters. The majority of attendees were from California, with a sizeable delegation from Oregon, and two participants from Nevada. Several solar photovoltaics (PV) developers with actual field experience attended and contributed their input.
The first half of the day was spent on conventional financial formulas and background information on economic analysis. The latter is in contrast to the more well-known financial analysis used by banks and project developers. Because of fewer inputs and greater transparency, economic analysis is preferable for setting public policy–and hence, prices–than a full financial analysis. Detailed financial analysis, while an essential part of developing real projects, is less well-suited to open, public discussion of essential inputs than an economic analysis.
Most of the morning was devoted to an explanation of the Profitability Index Method for determining fair and effective tariffs for renewable energy without creating undue profit for investors or excessive costs to ratepayers.
The second half of the day was used to examine several case studies from California and Oregon for both wind energy and solar PV.
Case Studies
The wind energy case studies included both a large wind and a small wind example. The PV case studies used the insolation for Los Angeles, Portland, Oregon, and Daggett, California. The Daggett case was chosen as representative of deserts in Nevada.
The case studies included two results: one without federal subsidies (ITC, PTC, and MACRs), and one with federal subsidies.
The tariffs were based on 20-year contracts and assumed tariffs were 100% protected from inflation within a contract.
One wind energy case study examined the rates necessary for the profitable operation of a small cluster of 80-meter diameter, 2 MW wind turbines connected at the distribution level as might be owned by farmers or community groups.
The second wind energy case study considered a specific small wind turbine, the Skystream 3.7.
Large Savings from Large Wind in Outer Years
In the large wind energy case, the base rate for years 1 through 5 for all sites is $0.144/kWh without federal subsidies, and $0.103/kWh with federal subsidies. At the best site considered, the rate for years 6 through 20 is $0.078/kWh without federal subsidies, and $0.054/kWh with federal subsidies. At the windy site in years 6 through 20, the tariff is significantly less than any reasonable expectation for the rates paid to natural gas-fired plant with or without federal tax credits. This is significant for a state such as California, that is dependent on natural gas-fired generation for much of its electricity.
Solar PV Rates
Feed-in tariffs are highly dependent upon installed cost and yield (kWh per year). Costs for PV are falling rapidly. Nevertheless, the installed cost of PV is highly variable from one country–and even one state–to the next and is in constant flux. The installed cost of PV is much lower in Europe than in North America. There are many reasons for this. The reasons were not discussed at the workshop. What PV really costs in California remains hotly debated.
At the insistence of Monsieur Chabot, the European cost for a residential rooftop system, $5,000/kWDC, was one of the cases examined. This case was considered representative of potential costs in 2011 in California if a large market for residential solar PV was developed using robust feed-in tariffs, open access to the grid, and a much simplified application procedure over the cumbersome an costly process currently used by the California Solar Initiative.
The US case, $7,000/kWDC, was based on recent analysis by UCLA and Gainesville Regional Utilities.
The tariffs for residential rooftop PV in Los Angeles also varied with the value of the Profitability Index. Two values were chosen: 0.3 for dynamic growth, and 0.1 for moderate growth. Thus, there are eight possible tariffs for each site: two different installed costs, with and without ITC, and two different values for the Profitability Index.
At current US prices, solar PV in Los Angeles should be in the rage of $0.60-$0.70/kWh without ITC, and $0.45-$0.50/kWh with ITC.
For future prices of PV in the US market, the tariffs necessary are proportionally less.
The rates calculated in the workshop are considerably higher than those proffered in the media and proposed by regulatory authorities in the US.
Comments on the Workshop
“The tariff workshop yesterday in SF was excellent. Thank you for making it happen.”–Bill Powers (Powers Engineering)
“Thanks again for your tremendous work both in the conference yesterday and for all your help to Rory on getting such great speakers on Monday!”–Ray Pingle (Sierra Club California)
“Thanks to you and Bernard Chabot for a fantastic workshop on rate setting. I learned so much and feel much better equipped to participate in rate setting discussions in the future. I am sure I missed a lot, but I learned much more than I expected to learn. The workshop was done very well!”–Jennifer Gleason (Environmental Law Alliance Worldwide)
Again, your seminar this past week was top-class and I learned quite a bit.–Joe Bonanno (Sustainable Power Assets)
I highly recommend that policymakers take a look at Chabot’s method or consult with him prior to designing a feed in tariff or in revising an existing set of feed in tariffs. Chabot is onto something!–Michael Hoexter (Green Thoughts)
Energy Policy “Carrots and Sticks”: Bernard Chabot’s Profitability Index Method for Feed-in Tariffs by Michael Hoexter
Photos
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There were frequent questions asked of Monsieur Chabot and a lively exchange on the subject of what PV costs today in the US. |
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Photo of the Sierra Club’s Yosemite Room using both conference tables and dual screens. |
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Monsieur Chabot and Paul Gipe answering questions at the end of the day. (Photo by Jean Woo) |
